I've always wondered why Google prevents search engines to index a lot of user-generated content from its properties (photos uploaded to Blogger and Picasa Web Albums, public documents from Google Docs). It's a strange decision from a company whose goal is to make information widely available. For example, no photo uploaded to this blog can be found in Google Image Search or in other image search engines because a robots.txt file disallows that.
To solve this problem, a message from Picasa Web Albums announces the integration with Google Image Search:
Get more exposure for the public albums you're currently sharing on Picasa Community Search. Now, public albums from users with 'Public Search' enabled may also be included in Google image search results.
What I don't understand is why Google calls it an integration and why the public albums are available only in Google Image Search. Last time when I heard about an integration between a photo sharing site and an image search engine, Yahoo's search results were crowded with a lot of irrelevant images from Flickr, even if Flickr allows all search engines to index its pages.
Since there's no change in Picasa Web's robots.txt file, I suspect Google will do the same thing as Yahoo: mix the results from Picasa Web with the standard results, hopefully in a balanced manner. That means the public photos from Google's image hosting service will continue to be searchable only from Google's properties (previously, you could search them inside Picasa Web).
It's interesting to see that Google requires to login to Picasa Web Albums, even if you are already logged in your Google Account and the photo that appears in the search results for [caleb 2 months old] is from a public album.
Another change is that photos embedded in other pages are searchable, as you can see by restricting your search to these subdomains: lh3.google.com, lh4.google.com, lh5.google.com and lh6.google.com. Google sends you to the full-size image even if the author of the page only linked to a thumbnail.