This is pretty much how I store and recall names. I noticed I often confuse names of the same length with the same first and last letters. Sometimes just the first two or three letters as well.
Names are just firstletter+garbage, which also means I can't recall any of the characters names when I've finished reading.
Fascinating, I have issues sometimes _remembering_ certain names in the first place (I've not yet discerned the pattern here...), but I cannot recall ever experiencing the variant of name confusion in the manner you are describing.
It also affects general recall for me. If I think a name might start with h, or be long, it may hurt my ability to recall it if it were th and short :)