I swore that Google Desktop used to provide a means for setting it to search the desktop by default, instead of the web.  Jess confirmed this for me.  He's running version 5.1.0707 and I'm running version 5.7.0712.  I guess they decided to take this feature away for some reason.  Jess found the option on the 'Display' tab of the desktop preferences.  But the option isn't there for me.

I decided to jump into the registry to see if anything jumped out at me.  Sure enough, something did.  The key HKEY_CURRENT_USER\Software\Google\Google Desktop\Deskbar has REG_SZ setting for "search_type."  The value was "Search Web" and I changed it to "Search Desktop."  This immediately went into effect and I am now searching my desktop by default from the deskbar.