Windows Live Search is a web search engine. As such, it has little or no access to the files on your local machine.
For searching images on your local machine, you might want to look at the Windows Live Toolbar, which includes Desktop Search functionality. Also take a look at the Windows Desktop Search product page.
-Danny
I believe the "smart scroll" is "just" a virtualization of the scrollbar metaphor. When you start to get towards the end of the list, the control asks the server for more data. The downside is you don't know how much data is really in the entire set - the scrollbar thumbnail position no longer represents the view's relative position in the dataset. For finite data sets, this is annoying (seen it lots of times in SQL result set data grids, because it's usually difficult/expensive to get the total number of rows in the result set from the SQL server). But for virtually infinite result sets such as web search results, relative position in a nearly infinite data set doesn't hold much value.
I'll see if we have any plans to break out that smart scroll as a separate web control that you could use in your own web apps. (It might already be available in the Atlas framework)
-Danny