Also, there is a 900 byte max key length that you have to stay within.
The simple fact is, it's going to be harder to index 500 characters than 50 because it's longer. Yes, 420 characters will be more selective than 42, but, your histogram is going to have to cover a lot more territory accurately to make the index reflect reality. Data skew is certainly likely with much larger text fields which can lead to bad plans as the row count estimates are wrong. As narrow as possible on the keys for indexes is a good general rule. It's not carved in a stone tablet, but I do try to follow it. However, if you need to index 500 characters, and testing shows it helps, index 500 characters.