Yah. The traditional budget is $260 and there's no terribly good reason to use that other than everyone else does so if you see draft previews, they may assign their projected values onto players so it's easier to prepare. We had slightly larger than standard rosters so bumped it up to $290 but kept it in the ballpark.
The dynamics of the auction are:
1) Assign nomination order. This is like draft order, except not quite.
2) First player puts a player up for auction and gives their opening bid.
3) You can either do in order or a free-for-all; people keep bidding until the highest bidder wins.
4) Player is assigned to that person's team and the salary docked off of their budget. Note: If you have 26-man rosters, and $260 budget, the most anyone could spend on the first player is $235 since they have to spend at least $1 on the rest of their roster. $235 + $25 X $1 = $260.
5) Next player nominates.
6) Repeat steps 2-5.
I imagine a live auction would be idea. I've only done it once and it was this year, using fantasyauctioneer.com which worked really well. It let you adjust as you went the amount of time a bid had to stay out there before the player was, "SOLD" and kept track of everyone's budget / needs / etc. It was $20, I think. In any case, I would use it again or if I could get everyone into the same city, do it live around a table.
Other basic info is that there's a rule of thumb that you spend 30%-40% of your team's budget on pitching but that's largely based on tradition and the idea that pitching has a higher variance than hitting. But it's not ironclad. And there's a host of literature as to what rounds yields the best values (basically, people overpay in the beginning, settle down in the middle rounds and then start splurging again at the end once the blue chippers are really whittled down).
Arguments for the auction that I can see are:
(1) It's really completely fair. If you want Pujols, you pay the top dollar to get him. You don't rely on getting your name pulled out of a hat to get the first draft pick.
(2) You can draft the team you really want. If you want a few studs and then some youngsters who have promise, you can do that. If you want to rely on the less glamorous but more steady guys you can do that, too. You also don't have to pick someone just because the draft consensus tells you have to. If you don't like certain players, you can just avoid them and let someone pay more or less market price for them.
(3) You can get into a sweaty-palms screw your neighbor kind of bidding war. If you know a guy is a huge Mets fan and David Wright is up, you can try to push him further than he should pay. Of course, you run the risk of having him drop out and sticking you with him, but hey, that's part of the fun.
We also did our as keepers with escalating keeper values: $3 the first year, $5 the second, and $10 each year thereafter. Which I think is a better system than just allowing a certain # of keepers or losing draft picks or whatever. You can hold on to your studs, but it (like real baseball) becomes a salary question: is this guy worth it? Do you hold onto Pujols at $53 or Kearns for $4? More strategy than simply saying, "Pujols or Kearns? Pujols."
So I like it and endorse it.