To begin with I don't feel there is a right or wrong answer because any view must be mainly specualation since JA does not obviously let us know if LR really saw FW. I just wanted to share how I came to the conclusion that I believe she did see him:

1. It's true Anne's FW antennae are working at peak capacity but I interpreted her watchfulness to be not so much from a romantic state but from her anxiety in anticpating LR's reaction when she sees him:

"Would she recollect him? How would it be?" (Ch 19) And "The following morning Anne was out with her friend, and for the first hour, in an incessant and fearful sort of watch for him in vain;...No, it was not to be supposed that Lady Russell would perceive him till they were nearly opposite. She looked at her however, from time to time, anxiously;..."

I admit that Anne's view of FW---that even after time and service, they "have not robbed him of one personal grace" is steeped to some extent in her romantic feelings but we know how level headed Anne is in even the worst of circumstances so I feel this is an accurate assessment despite what her state of mind might be. Also we have further support: "No; the years which had destroyed her youth and bloom had only given him a more glowing, manly, open look, in no respect lessening his personal advantages." (Anne, Ch. 7) "A well-looking man," said Sir Walter, "a very well-looking man." "A very fine young man indeed!" said Lady Dalrymple.

2. If Lady R did not see FW and she was really only looking for curtains at that exact moment at the exact time they were passing each other, then it would be a coincidence. I was always taught that while coincidence is perfectly welcome to happen in real life it is considered poor plotting to write it. JA being the genius she was...but if could be argued that she was ill...and maybe another draft...no one is perfect, even a genius... Anyway...it was something I considered though it could certainly be debated.

3. Then there is Lady R herself. I would rather believe that she did not see FW but she is so manipulative and her designs for Anne seem to suit her own interests more than they do Anne's. This makes it an easy leap for me to believe her capable of staring at FW and then pretending it was only curtains she was looking for... And curtains? Lady R? I don't know...they seem such a common thing to be claiming her interest at just such a moment...perhaps...maybe...but it's just doesn't compute for me. And then this:

"The first act was over. Now she [Anne] hoped for some beneficial change...some of them decided on going in quest of tea. Anne was one of the few who did not choose to move. She remained in her seat, and so did Lady Russell;...and she did not mean, whatever she might feel on Lady Russell's account, to shrink from conversation with Captain Wentworth, if he gave her the opportunity. She was persuaded by Lady Russell's countenance that she had seen him." (Ch. 20)

LOL. I can't believe Lady R's not doing this on purpose! "He (FW) did not come however." Hmmmmmm. A bit later, when FW is sulking and Anne is wondering about his sudden change in attitude, she fears her father or Lady R might have given him an unpleasant glance. I don't think there can be any doubt that Anne loves Lady R nor that she holds any resentment against her, but she knows her well: Lady R. does not like FW. But she does not plan to let it deter her again. They are both on a mission. Anne is trying to position (love the way we literally see this with the seating) herself for a second chance with the guy she loves and LR is on a mission to make sure this doesn't happen. :(

Having said all this, I think either position is valid---LR did not see FW; Lady R did see FW. We aren't really told what is true. It is left up to one's perspective and everything we interpret is filtered through our personal experiences and also our state od mind at the moment we read something. We can read the same thing an hour later and possibly get an entirely different interpretation. Someone (?) below in this thread read this: "Elizabeth had turned from him, Lady Russell had overlooked him;" in regards to FW and saw the word 'overlooked' as meaning 'missed/did not see him'. When I read it I saw it as meaning she 'deliberately ignored' him. I looked it up in my dictionary and both meanings are listed. We read the exact/same words but came up with different definitions. Did JA do this on purpose, I wonder?

In the end I decided that Lady Russell saw Captain Wentworth based on the reasons I listed above. However, when Anne said, after Mr. Elliot's flattery in interpreting Italian: "I should be sorry to be examained by a real proficient", I too would be sorry to have to debate my position as, for the most part, it is based on personal opinion and instinct. I'm sure I don't have a leg to stand on, wobbly ones at best. It was interesting to read each position and the reasons everyone gave for that position. I also throughly enjoyed reading them. Thanks. :)