I found the solution. It is mentioned in the Release Note for My Inbox 2106212 at the very bottom under 'Additional Information'. I implemented the note but missed this info....its definitely a hidden spot for details on how to turn on certain functionality. My recommendation to SAP is to add it to the app implementation documentation, especially if it is disabled by default!
Anyhow, following is the screenshot from the note on how to turn it on:
Once you are there, hit 'New Entries' and mark the checkbox and save it.
Once I enabled it, I could search for any user by just typing in their username or first/last name.
Thank you everyone for their input!