No. The Search Index is only encrypted if the file is stored in an encrypted folder or on an encrypted drive.

Microsoft states that the data within the Search Index is obfuscated to prevent easy access to data contained within it. This is partially correct, although the data obfuscation is dependent upon which version of the index is in use and which field of the database table is being referred to.

Windows Search index analyzer de-obfuscates data for use within the program.

The Windows Search Index does not contain image data.

Thumbnails of images are contained within the system thumbcache files and the Search Index contains a reference to these images in the thumbnailcache_id field.

Yes, the index can store data from encrypted files. Although encrypted files are not indexed by default a user can choose to index locations which are encrypted.

In the event that the index is not stored in an encrypted location any data stored from encrypted files will not be encrypted within the index.

Microsoft introduced the ability to index encrypted files in version 4.0.

Removable or external local drives are not automatically indexed but can be set as indexed in the indexing options in the control panel. Alternatively, when a user undertakes a search in such a drive then the option to index that location is given in an information bar above the search.