I'm writing a simple program for file encryption. Mostly as an academic exercise but possibly for future serious use. All of the heavy lifting is done with third-party libraries, but putting the pieces together in a secure manner is still quite a challenge for the non-cryptographer. Basically, I've got just about everything working the way I think it should.

I'm using 128-bit AES for the encryption with a 128-bit key length. I want users to be able to enter in variable-length passwords, so I decided to hash the password with MD5 and then use the hash as the key. I figured this was acceptable--the key is always supposed to be a secret, so there's no reason to worry about collision attacks.

Now that I've implemented this, I ran across a couple articles indicating that this is a bad idea. My question is: why? If a good password is chosen, the cipher is supposed to be strong enough on its own to never reveal the key except via an extraordinary (read: currently infeasible) brute-force effort, right? Should I be using something like PBKDF2 to generate the key or is that just overkill for all but the most extreme cryptographic applications?