If I add affiliiate links to my Index page will this negatively affect my Google traffic? Should the links be encrypted? What is the best way to accomplish this without hurting my rank?
Just don't make them stand out tooooo much, be obstruive and annoying if they are even just little text links then that's fine.
You should also watch that your affiliate links are matching the topic за the page, which means that I would not put advertising of photo cameras on my pet website. It is better even if you use one of your keywords in the anchors of the links, which will allow improving the keyword density on the page.
Cookie cutter affiliate link farms will get drop from google, but there is nothing wrong with having few links on the homepage. But if you consider the user when adding banners/ links, then you have a greater chance of the users clicking on the banners/links = revenue.
I would cloak your affiliate links - then they look better for site visitors as well. You can use a nofollow link to a separate page on your own site that automatically redirects (with a 301) to the affiliate site. That way I don't think there is any risk at all. eg if your site is buyacar. com the link might say buyacar. com/ford.php and the page ford.php redirects to the ford website. There are other, perhaps better, ways of cloaking if you search these forums.
Google does not issue penalty on pages that bears affiliate links. They only punish pages that have useless content + affiliate links. Source: http://www.google.com/support/webmasters/bin/answer.py?answer=66361