I had this problem on a laptop with Windows 7 and now on one running XP.
My mom had a computer killed by a virus (wouldn’t let me access Windows, but that’s not an issue anymore). Eventually I will re-format and re-install Windows, but before that I need to get her pictures off of it. I got the external enclosure for it. I plug it in and Windows reads it, I can browse around with explorer and all, but whenever I search it ONLY searches the open folder, not any of the folders contained within (which makes it useless). My mom isn’t sure where she stored her pictures and I can’t find them. I saw a few others with the problem via google, and their solutions were to change the HD letter, or disallow indexing. Neither worked. Any ideas?