Well you won't have to worry much about effectiveness when it comes to Daemons of Chaos in Fantasy. There is a reason that they are one of the most popular tournament armies. I don't actually own the army book, but flesh hounds and flamers are known for being especially effective.
As for using a small army of -large- models, I'm not sure how far you can go with that. With Daemons, you will certainly have a much smaller model count than most armies and you have a few huge point sinks like the Greater Daemons available. Just like any Fantasy army, however, you do have a requirement to field a minimum number of core units (typically 3 units for 2000-2999 points). Going from memory, I think the core choices for Daemons are all infantry units on 25mm bases with a minimum unit size of 10. That's hardly a swarm as fantasy armies go, but you will still be looking at a fair amount of infantry.
Most folks are fairly forgiving about having the actual models, so I'd say if you're interested in giving it a go, just pick up the demon army book and some bases and try them out a few times before you invest too much time into the modeling.