Okay, here's an update on our situation. At 7:54 am on Sept 21, 2005 I posted this.
errorsamac, we just did exactly what you're speaking of to a php site 2 days ago. (We made the inside pages url friendly)The index page stayed the same.
So now all 160 of the internal pages 404. A scary situation, but we figured better to do it now than later. So our stats were mainly 404's yesterday, yet the visitors click thru the custom 404 anyway. So we didn't lose visitors.
It should be interesting how G responds to this. Last year in November we did a script change that changed all the inside URL's and we lost all the inside PR, but G picked up on it within 2 weeks. So we are curious as how big G will handle it this year. I'll let you know.
So, this evening the new URL's are starting to appear in the Google serps, with a cache date of Sept 25, and the 404's are few in our stats, mostly from Yahoo and MSN. So it only took 5 days, from the 19th to the 26th for G to find our new URLS. The site has a PR 4. We feel like the new urls have been included in one database so far, and will be fed into the other databases.