Just to add my 20 cents worth...
As has already been mentioned, direct fire is not about the weapon range but about your ability to see the target. If you can see the target at 40m it's direct fire, if you can see the target at 400m it's still direct fire. If you can't see the target it's indirect fire.
The difference in range between the M79 and the M203 has everything to do with the sights as mentioned by Abbott Shaull but the other critical factor is the barrel length.
Barrel Length: -
M79 - 35.7cm (14in)
M203, M203PI & M203A2 - 30.5cm (12in)
M203A1 - 22.9cm (9in)
The 40mm low pressure grenades are also low muzzle velocity (about 76m/s for most rounds if I remember my training right) so wind can really play havoc with them and thus effect the max range. In fact, they move so slow you can see them in flight when you fire them and a quick operator can get 2 or 3 in the air at the same time to cause the same sort of effect that Legbreaker mentioned (although in this case the grenades are detonating a few seconds apart).
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