Funny you mention that. The last bar fight I got into I tried the palm heel thing, but just couldn't reach the fuck. Definitely shortens your reach. Won't do it again and take my chances with my knucles...break or not. If I can break his jawbone while breaking a few knuckles, I'm okay with that.
Yeah, it does shorten the reach. If you want to use the fist, best put it on the nose — nicely cushioned for the hand and painful for the nose.