Relationship type between contacts of type "All contacts" not working

Relationship Type which is used for contact types "All Contacts" fails to return search results.
To reproduce do the following

goto the demo site (drupal-php5)

See the last relationship type "Neighbour of"
http://demo.openngo.org/civicrm/drupal-php5/civicrm/admin/reltype?reset=1
(it is between contacts of "All Contacts")

• Goto "Find Contacts" and view a random contact for example "Adams Amar"
  http://demo.openngo.org/civicrm/drupal-php5/civicrm/contact/view?reset=1&cid=85

• Scroll down to the "Relationships" section and click on the "New Relationship" link
  Select Relationship Type Neighbour of
  Find Target contact Adam
  click on the button "Search" button

It comes up with no results giving the message
"No matching results for

• Name like: adam
• Contact type:

Check your spelling, or try fewer letters for the target contact name."