Does max size of varchar influence index size

Hi,

I have problems with my database becoming huge in size (around 150 GB
right now, and 2/3 for only three tables, each having around 30 millions
tuples. Space is spent mainly on indices.).

I have a lot of multi-column varchar primary keys (natural keys), and
lot of foreign keys on these tables and thus a lot of indices.

When using VARCHAR, we defaulted to VARCHAR(32) (because on _some_ of
the identifiers, we have to apply md5).

We assumed that using VARCHAR(32) but having values at most 4 characters
long (for example) wouldn't influence indices size, ie it would be the
same as using VARCHAR(4) to keep the example.

Now I really doubt if we were right :)

So, what should we expect ? And are there other factors influencing
indices size ?

Thanks,
Franck