Nope, it's really not a bug. Unfortunately it's working as designed. This feature doesn't work for CHM output. The thing is, there is no way for RoboHelp to know you are going to output CHM. And since it would work in other outputs, well...
However, I would still encourage you to report it to Adobe. Maybe they could update the dialog with a note advising it won't apply to CHM format.
Thanks but it sounds like a bug to me. What difference does it make which output I'm generating? Adding a note to the dialog box sounds like the lazy way out. But thanks for the clarification.
You have to remember that when creating CHM output, control leaves the RoboHelp realm and enters the Microsoft realm as RoboHelp simply hands control to the Microsoft HTML Help compiler. At that point, you are in Microsoft world where this functionality never existed.
If you are determined, I believe there *IS* a way to coax a topic to become unsearchable inside a CHM file. And that's why I suggested the bug report. I think you can probably delete the topic from your topics in RoboHelp (but don't delete the references) then add the topic as a baggage file. And that may work. to do it.