What does 'should' mean in this sentence?

'She walked through the forest, and who should she see, but the Big Bad Wolf!'

Solution 1:

In this case, should is a way of heightening the drama of the event:

should 8 used to emphasize to a listener how striking an event is or was : you should have seen Marge's face. [NOAD]

Do and did can be used in the same way:

I came home early and what did I see? My wife in bed with another man!

Should in your sentence and did in mine are used as a mild form of erotema, a rhetorical device that asks a question to dramatize a certain event. It is, in fact, the most common device, otherwise known as a "rhetorical question".