I just think I remember reading about this somewhere once before, maybe a couple of years ago, which is why I ask about search engine indexing, I'm no expert and as I mentioned I seem to rememeber reading something saying that it would.
The SEO URL option on the other hand, I believe helps a sites listings a fair bit.
Again no expert.
Let me know if it does, you could always keep an eye with google using their webmaster tools/stats, I find them useful.
I think that from a SEO standpoint, it won't hurt you that much, as long as you have links on each of your pages that link back to another page...say, like a discreet link "home" at the bottom of each page...you just have to allow links to all your pages so that search engine spiders can crawl through your entire site...
a site map page, with links to all the site pages and a link from the index.php page would probably be a good idea as well...
i think a bigger issue is what happens when the user wants to bookmark that particlur page...it won't work with frames or an iframe...you will have to put a "bookmark this page" link on each separate page of your site.