The ATSB report now states that the aircraft reported he was holding off Horn Island, due to WX. This is the most accurate info to date, and obviously the major reason for the difficulty in establishing a precise location of wreckage.
An inflight breakup (or even a CFIT) doesn't necessarliy involve wreckage strewn over a wide area, as evidenced by the number of aircraft that have disappeared with suspected catastrophic failure, that have never been found.
A disappearance over water makes the wreckage-finding task just that little bit more difficult. Surely, some TS Islanders out fishing, must have seen/heard something.
Some on-the-ground questioning of the locals must have to be an important part of the current search.
Investigation: AO-2011-033 - Missing aircraft - Aero Commander 500S, VH-WZU, near Horn Island, Queensland, 24 February 2011