SharePoint Search Scopes don’t appear in drop-down list

The “All Sites” and “People” search make use of the Search Center capabilities in MOSS. It appears that you do not have a Search Center created, or the URL for the Search Center is not correct.

a) Create a Search Center Site
b) Associate the Site Collection Search settings with that Search Center
You can get to this by clicking on Search Settings under the Site Collection Administration section. When you select Custom Scope, you need to provide a URL to the search center.

Once you have the site create you will just select People Search Webpart

Edit -> Modify Shared WebPart and in the Miscellaneous section change the
Target search results page URL to /sites/SearchCenter/results.aspx.
If you use People search in the dropdownlist. You will need to change the scope by SharedSerivce Provider (SharedServices1 > Search Settings > Scopes > Scope Properties and Rules )