Ryan Singer shares some tips about prototyping tradeoffs in The Fidelity Curve: How to weigh the costs and benefits of creating UI mockups:

The purpose of making sketches and mockups before coding is to gain confidence in what we plan to do. I’m trying to remove risk from the decision to build something by somehow “previewing” it in a cheaper form. There’s a trade-off here. The higher the fidelity of the mockup, the more confidence it gives me. But the longer it takes to create that mockup, the more time I’ve wasted on an intermediate step before building the real thing.

I like to look at that trade-off economically. Each method reduces risk by letting me preview the outcome at lower fidelity, at the cost of time spent on it. The cost/benefit of each type of mockup is going to vary depending on the fidelity of the simulation and the work involved in building the real thing.

He goes on to provide some solid guidelines for when to go with paper & pencil vs. interactive or higher fidelity mock-ups.