What operating system? What maintenance release of InDesign (hold down cmd or control and select About InDesign)?
MAC OS X 10.6.8 and InDesign 7.0.3. We found out that we had to wait and wait for the Index to generate. It would take about 45 minutes to an hour for it to work. When I would look at InDesign it would say Application Not Responding but I had that issue with a PreFlight and collect for the job I was working on. So I watched the file folder to see if it was doing my collect and I could see the images being brought in even though it said Application Not Responding when I right clicked on InDesign. So I decided to try it with Generate Index and an hour or so later I had my Index. I don't think it should take that long but at least I have it. Maybe I need more patience???