I tried it out, and the bottom line is: this is really slick, and I want it on my blog immediately. How soon are you sending out those beta invites?
Now to make myself useful:
1. This pulls in about 50 kB of very useful JavaScript: jQuery, jQuery-ui, TopUp, jCarousel Lite. Your own JS code is very light in comparison. All this is minified and gzipped, which is good, but that's still a fair amount of stuff. Do you have any plans to lighten this a bit? Perhaps use something like Closure Compiler with advanced optimizations to get rid of functionality that you don't use, and package it all into a single file?
2. How are you going to check for updates to the blog's content, so you can re-index it? The traditional way would be polling the RSS/Atom feed; the shiny new way is to get realtime updates via PubSubHubbub where available, and fall back to polling when that's not available. This can be simplified by using a service like Superfeedr to handle the polling fallback for you and just provide everything as PubSubHubbub feeds.
3. It's probably too early to talk about tweaking your ranking algorithm before you've started getting actual user data (you are storing complete logs, right?), but I'm sure there's a lot of room for improving the results. Again, this can happen after you've started to get more blogs and more user data.
4. A lot of people have blogs on Blogger, and despite being run by Google, their search box is pathetic. However, terrible as it is, it occupies some prime screen real-estate. I would like to have some Blogger-specific JavaScript I can drop in to replace that search box with yours.
5. If I type in a search query and press Enter without selecting one of your drop-down menu suggestions, nothing happens. It would be nice if pressing Enter did something, even if it just sent the user to a Google search.
6. Seriously, when are you sending out beta invites? ;-)