The MORE Tag and Google friendly URLs

I’m using 1.2 Alpha and ‘Google-friendly’ URLs like: http://www.mydomain.com/archives/category/post-name.
i) Can I reduce ‘archives/category’ to one only folder or rename it?
ii) If I use the MORE tag I get a URL like this when looking at the full post:
http://www.mydomain.com/archives/category/post-name/#more-35
I believe Google can’t get past # hash marks and so won’t index the full post.
I could be wrong and am looking for examples.