Google definitely does index the contents of pdf files.  I found this out the hard way as I had a real estate pdf on my site that I wanted to have listed in the index, but I didn't know that the contents would be crawled.  The pdf contained some listings that I was not legally allowed to advertise on my site.  (It was legal for me to give someone a report with the listings in it though).

When another realtor was searching for their own listing, my pdf came up.  I got in trouble.  I'm ok now though.