We downgraded from a 1.6 2004 Megane to a 1.4 500. (I don't really see it as a downgrade though, ie a Renault to a Fiat, more of an upgrade)I certainly CAN see an improvement in the fuel economy over the Megane. According to the display on the 500, although I've not managed to achieve more than 41 MPG so far, it's still it's a fair bit more than on the Megane.
I chose the 1.4 over the 1.2 as it seemed, to me, more responsive and lively and I liked the engine note too, as there's a bit of grunt there. It felt as 'lively' as the 1.6 Megane I was used to,if not livelier, whereas the 1.2 in comparisan to the Megane and 1.4 500, felt less so. I didn't test drive either the 1.2 or 1.4 on the motorway, so can't comment on which engine size is best suited to motorway driving. I drive 5 days a week from Brighouse to Bradford and back, plus over to Dewsbury twice a week and Harrogate twice a month, so there's a mixture of road types, and I've no gripes with the 1.4 engine at all.
At the end of the day I'm still saving money on petrol and a small amount on road tax, over my previous Megane, yet the car is more fun to drive and more responsive. I know that if I'd gone for the 1.2 or the diesel I would have saved even more money, but I am happy with my choice and have no regrets getting the 1.4.
See if you can get your dealer to let you have a longer test drive of both 1.2 and 1.4 before you make your mind up. We got our 500 from Clemo in Cleckheaton, West Yorkshire - pretty good service overall. Good Luck.