Everybody says this, but I just don't see it.
Look at it this way. I can imagine three main reasons you need to look up a power in the book.
1) You already have the power, and want to see what it does.
2) You are deciding which power to take next.
3) You are making a character and trying to choose a class.
As far as 1) goes, in my opinion you should have your current powers written out somewhere, either in card form or on a sheet of paper. Nothing bogs down a game so much as someone flipping through the PH to look up what their powers do (and while an index might reduce the time spent flipping, I would think that finding the power in the index and turning to the page wouldn't be that much faster than finding the class and flipping forward to the right level of power).
For 2), please explain to me how an alphabetical listing of all powers for all classes will help you choose a level 7 Fighter encounter power more quickly than a list of all Fighter level 7 encounter powers could? And even if the index was organized by class and level rather than alphabetically, how would a list of powers help you choose, when none of the rules are on the list? I just don't see how
Fighter Encounter 7
Come and Get It, page 80
Griffon's Wrath, page 80
Iron Bulwark, page 80
Reckless Strike, page 80
Sudden Surge, page 80
would be any help at all. And a list of all powers arranged alphabetically rather than by class and type would be worse than useless. I really think that the current layout of powers is the only way to do it.
And again for 3), neither an alphabetical listing of all powers nor even a list of powers sorted by class and type (but without rules) will help you choose a class. You need to see the full text of the powers to decide if you want them or not.