This week I was in Waltham, MA doing a SharePoint Mentoring Session at the Waltham MTC*. The client was pretty fly (an international insurance company) and very eager to learn all about SharePoint. They peppered me with questions that I was, frankly, very happy that I could answer. One of the ones that I had to debug was the following: why am I getting "Unknown Error" when I do a top-level site search on a medium server installation.
Short Answer: To do search, the App Pool of your SharePoint Web Application must be a Domain Account.
Longer explanation: In a medium server installation, or any installation that has a DB on another Box, you are going to be accessing the DB over the network. Specifically, you are going to be accessing the SSPAdmin DB. To do this, the executing process (which gets its identity from the App Pool) must be able to authenticate over the network. Ironically, the Network Service on a local box will not have access to the DB (it will use the machine account Domain\MachineName$) from over the network. Look in your logs, you will probably get a notice that the machine account couldn't log in. The solution is to change the App Pool to use a Domain Account that has access to these DBs.
As a follow up, I don't know what other DBs that the App Pool Identity will need access to beside the SSPAdmin_DB.
Another search related post will come shortly (which solves a similar problem).
* MTC – Microsoft Technology Center: a Microsoft office with a boatload of servers. MS brings customers there to show how their products will run in an actual enterprise environment.