Well, yes, they obviously can as in could, as could any other OS. This incident doesn't actually show any local files being sent to MS, however. Online search

Well, yes, they obviously can as in could, as could any other OS. This incident doesn't actually show any local files being sent to MS, however. Online search can be disable with a registry entry, which proves that the online service is not necessary for searching local files. It's far more likely that a connection error for the bing search is just triggering some bug that then prevents local results from being shown.