A small mithral SS would weigh half as much as a normal small SS; 1/4 lb.
The price is the same as a medium weapon. You're not counting the real cost.
The weight would be 1/2 pound, as you said (2 divided by 2 (for small) divided by 2 (for mithral)).
However, there is some disagreement on pricing. Some people say you should price based on the original weight (1lb here, for a small short sword). The Unofficial FAQ holds this opinion as well, and it seems to be in the majority around here, but I can't find any officially official word on the subject. Anyway, with this system it would cost 510gp.
There are, however, many who vehemently disagree with this and use the system you used, basing the cost on the final weight (in this case, coming to 260gp). It is indeed cheaper than a normal masterwork version, which is weird. It can even happen with normal weapons, as this FAQ says to treat "-" weight weapons as "1/2" for Mithral purposes. It was mentioned in the thread that spawned that FAQ that that weight would make mithral weapons cheaper than normal MW, but this was either unnoticed or considered not worth dealing with. At the end of the day it really is just 50gp less than regular MW, which isn't worth too much head scratching or arguing over. Drink one less Potion of Cure Light Wounds and it all evens out.
Mithral is +500 GP per pound + the cost of the original item.
A medium shortsword is 2 pounds.
Small items weigh 1/2 that of a medium one.
A small shortsword weighs 1 pounds.
500gp + 10gp (the cost of a regular shortsword= 510 GP. Its automatically masterwork.
I think you can get a small dagger cheaper this way than masterwork.
This issue came up recently, concerning larger items and material costs. Like most discussion, there were arguments on both sides. The question becomes muddied due to the fact the different special material costs are calculated in different ways.
In your case, you should have the discount for a smaller weapon weigheing less.