I have noticed that after a clean install of SharePoint 2010 Foundation the people picker's "browse" function search does not find any of the local users on the server that Foundation was installed on.
If I type in the exact username and click "Check Names" it is validated and a prefix like "MachineName\User1" is added.
Once a user has been added to the site they can then be searched via the "browse" button. If they have not been added, the "browse" button search will not reveal them.
Is this how SharePoint is supposed to work? Do I need to add all the local users to a generic location in the site in order for them to be searchable in the browse window? This is my first "official" installation of what will become a production site, so I haven't dealt with these account issues in the past.