They can be very rewarding, and take a fraction of the time of a normal warhammer battle! I would recommend putting a lot of scenery on a normal sized board, and banning Lord choices.
I believe some armies have more difficulty with such a small points limit, but I feel that we have some very good cheap options available to us. I've personally never played a game at that size though.
I done it a few times. Skink Priest or Skink Chief. Bunch of Skirmishers. Throw in one Sally, Razordon, or a pack of flyers. Lizardmen actually have an edge in this kind of fight against almost everyone. We have the mobility to avoid close combat when we don't want to fight and we can whittle down slower units with shooting.
you can also use warband rules. Mostly just some minor rules, like unit champs can be your general, and smaller minimum unit sizes. http://www.thekeeponline.com/documents/Warbands.pdf
We have played several 500 point games without any further rule modifications and the game played quite well. The only thing you have to accept is that luck has a even greater influence, since you will have only 2 to 3 units. So if you loose one of them to an unlucky break test, you are down by one half to one third of your army. On the other side 500 point games took much less time, so you could do best out of three or something to reduce the impact of unlucky rolls.
I fiddled with ArmyBuilder and I got a 500 point list out of it that looked like: Saurus unit 11 regulars + 1 Champ ( <= General) Skink Skirmishers 10 Skink Cohort 11 regulars + 1 Krox Bastilodon (either the big gem or the snake spitter was the same points)
I love 500 point lists. My favorite is oldblood cowboy, 2 groups of skirmishers, and a bastiladon. Oldblood has a crown of command (oldblood lets you escalate to 1000 later, if you want). Crown is really useful so that you don't lose to static CR when dealing with a slave block or whatever. Just throw all of your dice and the lazerdon, and fry your opponents most dangerous unit.