sites/all/themes/mytheme/

<?php
 
function phptemplate_preprocess_search_theme_form(&$variables) {
/**
* Changes to submit button
*/
//  Remove the Text (I have removed it here as i am using a search button instead) 
//Note the t(''); means no text
 $variables['form']['submit']['#value'] = t('');
 
//  add and image which replaces submit button
 $search_icon = base_path() . path_to_theme() .'/images/search_button.png';
//  add 'src' attribute to submit button
  $variables['form']['submit']['#attributes'] = array('src' => $search_icon);
 
//  rebuild the rendered version (submit button, rest remains unchanged)
  unset($variables['form']['submit']['#printed']);
  $variables['search']['submit'] = drupal_render($variables['form']['submit']);
 
/**
* Changes to input field and it's label (title)
*/
//  add default value to input field
  $variables['form']['search_theme_form']['#value'] = t('Search...');
 
//  change label (title) of input field
//  remove label (title) of input field
  unset($variables['form']['search_theme_form']['#title']);
 
//  rebuild the rendered version (search form, rest remains unchanged)
  unset($variables['form']['search_theme_form']['#printed']);
  $variables['search']['search_theme_form'] = drupal_render($variables['form']['search_theme_form']);
 
/**
* Additional
*/
//  collect all form elements to make it easier to print the whole form.
  $variables['search_form'] = implode($variables['search']);
}