You're probably right. How do you tell how many books it is trying to index?
Now that I have a K2, I just keep my SD card in my laptop with my entire library on it and transfer what I want with the USB connection. If I'm going on an extended vacation where I will be away from my laptop, I'll just load the Kindle up with books before I go. Works fine for me. I still keep a small (4 gb) SD card in my K1 but not much is on it at any one time.
If you run a search, when it gives you the results it will tell you how many files (if any) aren't searchable (because they aren't indexed yet).