Lerp would certainly work, although it might be easier to just calculate a scale factor...
if the top of the screen is 0 and the bottom is 800. And you want it to be full size (100%) at the bottom, and say 10% at the top then: (whenever you change the y value)
sprite > set scale to Sprite.Y/800 * 0.9 + 0.1
if the screen bottom is 1024 and you want it to be 20% when at the top:
sprite > set scale to Sprite.Y/1024 * 0.8 + 0.2
You would also want to adjust the speed as it shrinks to help sell the idea that it is moving away from you...
EDIT: ok, just read your post again, you mention that there would be a set point where it would be full size... so you want to clamp it
at the top of screen set it to 10% and at y=500 and below have it at 100%:
sprite > set scale to Clamp(Sprite.Y/500 * 0.9 + 0.1, 1, 0.1)
clamp will now prevent it from getting bigger than 100%, or smaller than 10%, so it will stay 100% between 500 and the bottom of the screen, but will scale smoothly towards the top of the screen once y is less than 500...