Could you please append your ifcfg-eth0 as an attachment? Thanks.

/etc/sysconfig/network-scripts/ifcfg-eth0 file:
# Broadcom Corporation NetXtreme BCM5703X Gigabit Ethernet
DEVICE=eth0
BOOTPROTO=static
BROADCAST=10.2.2.255
HWADDR=00:E0:81:2C:B7:BA
IPADDR=10.2.2.7
IPV6INIT=yes
IPV6_AUTOCONF=yes
NETMASK=255.255.255.0
NETWORK=10.2.2.0
GATEWAY=10.2.2.1
ONBOOT=yes
SEARCH=highley-recommended.com
DNS1=10.2.2.3
DNS2=10.2.2.2

Does this change help?

...
DNS1=10.2.2.3
DNS2=10.2.2.2
SEARCH="highley-recommended.com"
...

Quotation marks around the domain does not fix the issue. But I just tested changing:
From SEARCH=highley-recommended.com
To DOMAIN=highley-recommended.com

Now /etc/resolv.conf gets generated to:
# No nameservers found; try putting DNS servers into your
# ifcfg files in /etc/sysconfig/network-scripts like so:
#
# DNS1=xxx.xxx.xxx.xxx
# DNS2=xxx.xxx.xxx.xxx
# SEARCH=lab.foo.com bar.foo.com
nameserver 10.2.2.3
nameserver 10.2.2.2
search highley-recommended.com

Tested by doing; service network restart.

I'm reassigning this to initscripts, because /etc/sysconfig/network-scripts/ifcfg-eth0 is processed by shell scripts from this package. Net-tools doesn't modify or create resolf.conf anyway.

initscripts has never used SEARCH. DOMAIN is the proper key to use.

I can't agree that this is not a bug as the /etc/resolv.conf file is getting generated with a comment to create an entry in the /etc/sysconfig/network-scripts file using the key word search. So the bug seems to be an incorrectly generated file comment which is miss leading.

Can you paste the file?

The generated /etc/resolv.conf file:
# No nameservers found; try putting DNS servers into your
# ifcfg files in /etc/sysconfig/network-scripts like so:
#
# DNS1=xxx.xxx.xxx.xxx
# DNS2=xxx.xxx.xxx.xxx
# SEARCH=lab.foo.com bar.foo.com

That comment comes from NetworkManager - it needs updated to say that it should be DOMAIN=.

Bill: I thought we agreed on SEARCH over IRC a long time ago?  Did that get changed to DOMAIN now or something?

Hah, yes. DOMAIN is what was always used, but that's using one key for multiple things. We had agreed to add SEARCH, but that didn't get added yet (and is unlikely to be added for Fedora 8 in any case). 

Will get it added for rawhide and possibly F9 shortly.

Understood; how should I treat DOMAIN then?  Just like SEARCH except that it should contain only one item?  Or can DOMAIN contain more than one whitespace-separated item?

It looks like ifup-post would handle DOMAIN-with-multiple-items OK, so should we just ignore SEARCH and use DOMAIN exclusively?

From the earlier conversation, using DOMAIN will cause it to ignore and not put any 'domain ...' lines in /etc/resolv.conf, in favor of 'search ...'. If you're OK with that, we could go down that route. Are you using the DOMAIN value for anything else?

AFAIUI since 'domain' and 'search' are mutually exclusive in resolv.conf anyway, and NM will populate 'search' if there is more than one search sent back by the DHCP server or VPN connection.

The resolver behavior between 'domain' and 'search' is subtly different, but it looks like ifup-post will just dump everything in 'search' anway.

I'm fine with just using DOMAIN.  Lets forget we ever talked about SEARCH.

Fixed in upstream NM svn 4022.

NetworkManager-openvpn-0.7.0-15.svn4027.fc9,NetworkManager-vpnc-0.7.0-0.10.svn4024.fc9,NetworkManager-0.7.0-0.11.svn4022.fc9 has been submitted as an update for Fedora 9.
http://admin.fedoraproject.org/updates/NetworkManager-openvpn-0.7.0-15.svn4027.fc9,NetworkManager-vpnc-0.7.0-0.10.svn4024.fc9,NetworkManager-0.7.0-0.11.svn4022.fc9

NetworkManager-0.7.0-0.11.svn4022.fc8,NetworkManager-openvpn-0.7.0-15.svn4027.fc8,NetworkManager-vpnc-0.7.0-0.10.svn4024.fc8,NetworkManager-pptp-0.7.0-0.10.svn4027.fc8 has been submitted as an update for Fedora 8.
http://admin.fedoraproject.org/updates/NetworkManager-0.7.0-0.11.svn4022.fc8,NetworkManager-openvpn-0.7.0-15.svn4027.fc8,NetworkManager-vpnc-0.7.0-0.10.svn4024.fc8,NetworkManager-pptp-0.7.0-0.10.svn4027.fc8

NetworkManager-pptp-0.7.0-0.10.svn4027.fc9, NetworkManager-openvpn-0.7.0-15.svn4027.fc9, NetworkManager-vpnc-0.7.0-0.10.svn4024.fc9, NetworkManager-0.7.0-0.11.svn4022.fc9 has been pushed to the Fedora 9 testing repository.  If problems still persist, please make note of it in this bug report.
 If you want to test the update, you can install it with 
 su -c 'yum --enablerepo=updates-testing update NetworkManager-pptp NetworkManager-openvpn NetworkManager-vpnc NetworkManager'.  You can provide feedback for this update here: http://admin.fedoraproject.org/updates/F9/FEDORA-2008-7375

NetworkManager-0.7.0-0.11.svn4022.fc8, NetworkManager-openvpn-0.7.0-15.svn4027.fc8, NetworkManager-vpnc-0.7.0-0.10.svn4024.fc8, NetworkManager-pptp-0.7.0-0.10.svn4027.fc8 has been pushed to the Fedora 8 testing repository.  If problems still persist, please make note of it in this bug report.
 If you want to test the update, you can install it with 
 su -c 'yum --enablerepo=updates-testing update NetworkManager NetworkManager-openvpn NetworkManager-vpnc NetworkManager-pptp'.  You can provide feedback for this update here: http://admin.fedoraproject.org/updates/F8/FEDORA-2008-7484

NetworkManager-0.7.0-0.11.svn4022.fc8, NetworkManager-openvpn-0.7.0-15.svn4027.fc8, NetworkManager-vpnc-0.7.0-0.10.svn4024.fc8, NetworkManager-pptp-0.7.0-0.10.svn4027.fc8 has been pushed to the Fedora 8 stable repository.  If problems still persist, please make note of it in this bug report.

NetworkManager-pptp-0.7.0-0.10.svn4027.fc9, NetworkManager-openvpn-0.7.0-15.svn4027.fc9, NetworkManager-vpnc-0.7.0-0.10.svn4024.fc9, NetworkManager-0.7.0-0.11.svn4022.fc9 has been pushed to the Fedora 9 stable repository.  If problems still persist, please make note of it in this bug report.