I have confirmed the behaviour of the people picker.
It is security trimmed by the user executing the query.
Created an OU=Restricted users,
Created a user=secure test
Created an OU=hidden users
Created a user=hidden user
In AD user and computers kept blindly removing permissions on the Hidden
users OU and user account until no access.
To test this go to the security tab of the 'hidden user' user object,
security tab, click advanced, go to the effective permissions tab
Select the 'secure test' user account and effective permissions should
be all grey boxes with no ticks.
(in production some sort of permission design using explicit deny might
be a better way to do this, not sure yet...)
So I created a site collection and set 'secure test' as the site owner
Once the site collection was created, I just used the team template,
I logged in as 'secure test', browse to the site, create a task and
assign a user.
Launching the people browser (address book icon thingy!) search for
'hidden' or 'user' does not show any matched results.
So that is good.
Ok now on to test number 2, what happens with the profile import in the
SSP and what happens when the 'secure test' account does a people search
through a search centre site...... more to follow.