Searching an Instance for users returns Users with discoverable turned off.
Our testers noticed that the setting "Allow discovery of this account in search results and other services" has no effect on the instances search results.
It seems like this setting is added just for compatibility with mastodon for removing users from their profile directories (and maybe other services), so I'm not sure it is supposed to affect the search results. (from here: #1470)
But if this is correct behavior maybe a better explanation in the Settings page would help alleviate confusion.