Regardless of the legality of this particular search, this confirms that the authorities are likely looking at this as a felony investigation, with all that this signifies for Gizmodo. Should Gizmodo be worried? Without question. With the REACT unit on the case (which specializes in these types of tech-related crimes), and with a potential violation of the Espionage Act of 1996 being provable and punishable by as much as a $5 million fine and up to 10 years in prison (see my comment here: http://news.ycombinator.com/item?id=1289741), they are no doubt taking this very seriously at this point.
Of course, I cannot help sympathizing with Mr. Chen - what a horrible trauma to go through. A very ugly scene for him and his family.