Several commenters here have suggested that building an alternative to Google, based on values like Wikimedia's, may be a good thing. This is a worthwhile point, and a worthwhile discussion; but it misses the point of what's problematic here.
The problem here, the thing that has many Wikimedians worried, is that Wikimedia trustee Jimmy Wales has apparently been telling outright lies about whether the organization has considered pursuing a search engine to rival Google et al. He has made a number of unequivocal statements in recent weeks -- he himself has accused ousted trustee James Heilman of lying on the subject (but Heilman's narrative is now verified by the published grant application).
The thing that has shaken Wikimedia up is not the idea of search, but the question of whether we can expect honest communication from those entrusted with the Wikimedia brand and organization. Beyond that, it's whether that organization in fact wishes for the input of Wikimedia's stakeholders in determining its strategic direction -- something it actively pursued five years ago, but is pursuing only minimally and reluctantly now, with the Knowledge Engine grant as merely the strongest indicator of how its activities fail to align with any strategic document with strong buy-in.