Do people on Steam see my non-steam games?
I have been adding some friends in Steam and I'm thinking if they only see Steam installed games.
If you add a non-Steam game to your games list and launch it, your friends will see the usual "toast" message, but the text will read "LT_Spaghetti is now playing non-Steam game: Progress Quest II". The name of the game in the Friends list is labeled as "non-Steam" in a similar fashion (although I forget the exact wording right now).
This question has some additional details about non-Steam games.