Ok, just looked at the policy:
Your computer's content is not made accessible to Google or anyone else without your explicit permission.
For more information about what Google Desktop Search can do, please see the Product FAQ.
What information does Google receive?
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Personally identifying information, such as your name or address, will not be sent to Google without your explicit permission.
How we use unique application numbers, cookies and related information.
Your copy of Google Desktop Search includes a unique application number. When you install Google Desktop Search, this number and a message indicating whether the installation succeeded is sent back to Google so that we can make the software work better. Additionally, when Google Desktop Search automatically checks to see if a new version is available, the current version number and the unique application number are sent to Google. If you choose to send us non-personal information about your use of Google Desktop Search, the unique application number with this non-personal information also helps us understand how you use Google Desktop Search so that we can make it work better. The unique application number is required for Google Desktop Search to work <font color="red"> </font> .
Google Desktop Search uses the same cookie as Google.com and other Google services. If you send us non-personal information about your Google Desktop Search use, we may be able to make Google services work better by associating this information with other Google services you use and vice versa. You can opt out of sending such non-personal information to Google during the installation process or from the application preferences at any time.
How do I keep Google Desktop Search from indexing or displaying certain files?
If there are any files or other data that you do not want indexed by Google Desktop Search, there are several ways that you can keep this data from being displayed, copied and indexed, as well as ways to remove it from the index after it has been included. You can see specific instructions on removing items in the user guide.