Yes, we are allowed to fly below 500ft; specifically we are allowed to operate not below 300ft agl in the event of a power failure over a congested area by day, which I assume are the conditions you mean; by night it's not below 500ft above obstacles.
No, there aren't many occasions when one needs to be so low but every now and then it's necessary. It's not done for fun.
Jetdriver - perhaps this thread should be moved to rotorheads where pegasus's last comment might attract some discussion?