I think I am missing something, but please correct me if it is expected behaviour.

When attempting to add an Application to a Task Sequence, the dialog box does not allow you to search all the subfolders for the application. It only shows the content of the current folder.

Is this correct?

You can use the normal search methods when looking at the Application node to find all Applications that are published, but not in the TS.

Is there any other method to find Applications? We only have a few Apps so far, but I can see this becoming very annoying with large numbers of apps organised into many folders.

It only shows the content of the current folder.

Is this correct?

Yes. 

Why using folders at all? The are not subject to RBA and are (more or less) useless. You can use the search/filter function of the console instead 

Thanks for the reply, I suspected as much.

We wanted to use folders to organise the Application lists, however we are seeing that it is not very useful and things like Administrative Categories are actually better for at-a-glance status.

I know that the TS only shows Applications based on RBA (Role Based Administration - I had to think about that) and Distribution Points, so having them in a flat list might actually be more efficient.