As a newer player, I like the sounds of all of this, even the painting part.
I'm still starting up in the hobby, but assembling and painting 500 points worth of units seems like a lot more attainable of a task than 1500. Granted painting isn't what a lot of people got into the hobby for... but I think it makes an event like this a bit more fun, maybe it's just me.
I'll have to figure out a 500 point tyranid army when I get home, but given the smaller board... I'm thinking that something crazy like raveners could be hilarious with some big move and assault ranges.
... Granted it also means they'll be shot in the face a lot earlier, but hey, that's the risk you take!
I'm looking at this as more of a tournament to have fun and mess around with things you might not normally use, just based on the fact that "hey, it's only 500 points!" Of course strategy will still be involved, but it should be entertaining first and foremost.
As far as which codex to use / exclude... I feel like that would be primarily upon the tournament organizers to decide. Which is... all of us. Personally, as long as we're not talking about SEVERELY outdated codexes (codicies? plural of codex anyone?), then I'd say play whatever you'd have fun using.