What are the advantages and disadvantages to purchasing the smaller denomination (½ oz, etc.) bullion coins?

Disadvantages: As the coins get smaller, the higher percentage in premium you'll pay.  In other words, as the coin gets smaller, you will be paying more per ounce of gold.  The 1 oz. gold coins are generally preferred over the smaller coins which gives them a little bit more liquidity.

Advantages: The smaller gold coins are also more affordable.  The 1/10 oz. gold coins are cheap enough that most anyone interested in beginning to build a portfolio can get started right away and soon be holding their very first gold coin!  Indeed, these smaller denomination coins put gold ownership within reach of many.  For those who prefer to invest regularly and don't expect to ever have more than $150 to invest on a coin at any one time, then consider purchasing 1/10 oz American Eagles on a regular basis. 

Yes, you will pay more in premiums, but you'll be on your way building a gold coin portfolio and making use of dollar-cost averaging.  It’s far better to begin something in a small way than to wait until you can "do it big".  Another possibility to consider is that while you are saving up for that one ounce coin, the price of gold may have risen to an entirely new level, again leaving you out in the cold.