For practical purposes, understanding this で as an abbreviated の中で is probably fine.
However, it doesn't actually feel like that to me. Consider this sentence:
The essential parts are just 食べ物, 最も好き, 何 and we put them together in some syntactically acceptable order.
What is your favorite food?
Food-wise, what do you like best?
Sure, there are nuance differences associated with these different syntactic structures, but in this case it's probably beside the point. In the second form, what's literally going on is that you're adjectivizing 食べ物 to describe what kind of 好きなもの you're talking about. Here's a crappy-sounding, direct translation:
What are your most liked edible things?
but it gets the syntax across, hopefully.