Someone told me Imperial Favor does not affect duels. I think that person is wrong.

D.6. Modify dueling skill
The ability that initiated the duel (in step D.1) established which
type of skill (military or political) is being used to determine the
results of the duel. Each player adds his or her honor bid to the
specified skill of his or her character that is involved in the duel.
This modification persists until the end of the duel.
NOTE: Any skill modifiers that were active at the time the
duel was initiated are still applicable during the duel.

Is my interpretation correct?

Yep. The Imperial Favor does modify the skill in play so it counts.

They are right.

The imperial favor gives a modifier to a side, not to a particular character, so it doesn’t work on duels.

Quote

The +1 skill modifier granted by the Imperial Favor applies to any conflict of the specified type in which its bearer controls at least one participating character. This modifier applies to the player’s total skill that is counted for the conflict, but does not modify the skill value of any of the characters participating in the conflict.

From page 9 of the Rules Reference.

@Doji Tori is correct. As a side note, you can win conflicts even when all of your characters are bowed because the Favor still gives you +1 as long as you control a character in the conflict.