nvarchar(max)

I had a back-and-forth with Chad Myers of Dovetail last night over Twitter over using varchar(max) instead of ever using varchar(50) or something less. It doesn't seem like one is going to lose a lot with varchar(max). I wondered if nvarchar(max) could come with problems but this suggested that nvarchar(max) uses nvarchar up to 255 characters and then falls over to something else behind the scenes. (no way to index an nvarchar(max))