I don't believe you are missing anything. The FDA trials which approved propecia were done using doses of 1mg every day. That is the only officially approved dosage for treating MPB. From word of mouth, it appears that you may also get benefit at 0.5mg but I know of no studies confirming that. It is reasonable to expect the benefit at a lower dose would be somewhat less. It should be much greater than half the effect though since the DHT levels do not drop linearly with dosage amount. I remember reading that 1mg of Propecia drops DHT levels about 70-80% (I dont remember the exact number) as much as Proscar (even though Proscar is basically just 5mg of Propecia). Based on what I have read, I believe that both sexual side effects and hair retention are due directly to a decrease in DHT. There is no other reason.
No, the half life is 6 hours. http://en.wikipedia.org/wiki/Finasteride