skin1/customer/search.tpl
In the input field code, change...
Code:
value="{$search_prefilled.substring|escape}"
To...
Code:
value="{$lng.lbl_search}" onblur="if(this.value=='') this.value='{$lng.lbl_search}';" onfocus="if(this.value=='{$lng.lbl_search}') this.value='';"