Well,
There are certain circumstances where "free space" on the device will effect performance.
If you're using an application that Caches information from the internet, you should have enough space for that App to save the data it needs out to "disk". That way it doesn't need to re-fetch the data over WiFi or 3G if it needs it.
If an App gets a "Device is low on disk space" message, it is supposed to clear temporary files and caches to free up space.
So, yeah, in some cases, having almost no free space will make some types of Apps perform slower. (Safari for example likes to cache images etc., and will have to refetch them from the web if you don't have "disk" space free.)
>500MB free is actually a LOT of space for caches and temp files. You shouldn't have any trouble with that.
<50MB free on the other hand might be slowing down some operations because your apps don't have space to cache files.