Well, it's finally here, and it appears to work as advertised. More later when it's finished indexing everything on my machine.
...later. I was... um... surprised to see search results from my local machine appearing when I searched via www.google.com. Machievelian privacy thoughts ran through my mind, until I clicked through to the help text:
Desktop Search allows you to simultaneously send your query to two different programs and locations. One query goes to Google, which performs a standard Google web search. A duplicate query goes to the Desktop Search application running on your computer, which searches the information the application has indexed for you. Desktop Search intercepts Google's results page before you see it, and adds your Desktop Search results just above your web results so you can see both at once.
These combined results can be seen only from your own computer; your computer's content is never sent to Google (or anyone else).