I'm confused, the people picker does use AD.

On my customer's site, there are people that don't show up when I browse with
the PP. If you use the domain\username and then click Check Name it resolves it
and you can add them to the site. But the PP will not locate them if you type a
last name.

I know the PeoplePicker has been discussed here, and I tried to search for that
discussion to see if it applied but couldn't. Sorry for re-hashing the subject
if it's already been picked apart!

Ok, I've figured out a bit more on this issue. I can browse any user in the AD
OU that contains the accounts used to install SharePoint. But I can't browse
users in other OUs. Any tips? I've been working with stsadm.exe scripts to get
the people picker to look at the whole domain. Just haven't gotten it down yet.

Got it! Once I got the syntax right for the script it worked fine!

Care to share with the rest of the class?

Yes, I was looking for the link! Here is the solution.

suguk.org/.../16960.aspx

But I've found that the "reset" doesn't work to restrict the people picker back
to original settings. And I need that to work before I can run this on a
production machine! When I run the reset script I get a message that says
Operation completed successfully. But then I can still add those other users.

IIS Reset???????????????????????

No, there is a script at that link to set the people picker settings back to
default. It didn't work as advertised for me. I did have to do an IIS reset
though.

One tip though is that you need to use the FULL domain name, and no spaces
between the domain, username, and password in the script. You will get the
"Operation completed successfully" message even if it did nothing!