[Maidhc O Casain]

I just created a deity in the editor with bite as his favored weapon. Then started up a warpriest with that deity. The bite damage increased from 1d4 to 1d6, so it appears to be functioning correctly.

It sounds as though your thinking is that the sacred weapon grants an attack bonus - it does not.

e.g.:

Warpriest worships deity with Warhammer favored weapon. Warpriest takes Weapon Focus: Light Shields.

Attack with Warhammer is at +0, but gets increased damage from Sacred Weapon. Attack with Shield Bash is at +1 (from Weapon Focus feat) and gets increased damage from Sacred Weapon.