I wonder what that dialog was. First thing is to try and find where the library went.

The normal one is in a Pictures folder inside the user account. Look for anything iPhoto related there. Perhaps the user held Option while launching it, which lets you create a new library under a different name or location. http://support.apple.com/kb/HT1229 has some info on this and how to move a library.

If you have found the library, and are sure iPhoto is pointed at the right one via option, but photos don't appear, it may be a database issue. In Finder, open the iPhoto folder. (For newer versions, hold control and pick "Show Package Contents" to open.) Look for the original photos in the file structure, possibly in folders named Masters or Originals. If they are still there, it is a DB problem. Refer to this: http://support.apple.com/kb/HT2638

The Time Machine comment is a bit odd, since as Bruno said, it backs up everything by default. Well, unless the user moved the iPhoto library/created a new one out on the same drive as the Time Machine backups. Open Time Machine in System Preferences and look at the settings to see if anything is excluded.