On second thought, this does seem to be a bug, if you ignore the public-facing search and focus on the CMS side. To reproduce it: create many subcategories, enough to force pagination. Here is my basic example:
College
– Arundel Community College
– Salisbury University
– .. 30 more colleges
– .. 40 more universities
If you search for a term that would show BOTH parent and subcategories (college), everything shows up fine.
However, if you search for a term that would only force a list of subcategories to show without the parent (such as “university“), the display doesn’t work and shows up with blanks.
I looked through the code and found lines 64-65 in wp-admin/includes/template.php:
if ( $category->parent != $parent )
continue;
Disabling that snippet makes all of the results appear (albeit in very disorganized fashion). Pagination appears to always be wrong, showing 23 pages regardless of search granularity.
I’ve tested this with:
WordPress 2.7.1.
PHP 5.2.5 / MySQL 5.0.45-community-nt
PHP 5.2.8 / MySQL 5.0.67-community