I just checked the version of the Internet Toolkit that I have just to check, and that is apparently the intended behaviour. For some reason, NI tends to not see timeouts as an error.
The thing to do is open up the read icon and follow the error clusters through. In the version I have, there are several places where there is a small icon labled "NO TO" on the error cluster that (you guessed it) filters out any timeout errors that occur.
The simple fix is to rename the read VI and then go through it and remove all the timeout filters--which really shouldn't be there in the first place.
Mike...