first off, no you do not prevent rank and file units from attacking him. a 5 wide unit can still chose to contact your unit with its corner in between the skink and the saurus unit. that means that the guy on the corner in his unit gets to hit your BSB. sure a normal trooper (and his support guy behind him) are unlikely to kill the skink in a single round, but against most opponents he will be dead in 2 rounds of fighting.
if you get to charge, you can indeed chose to place the skink outside combat (again assuming that his unit is 5 20mm models wide), and you will win against must such units. however, he could then chose to combat reform, widening his front allowing a bunch of models to hit (and kill) the skink. he will most likely lose his unit though since he will have few ranks left and you should win combat.
however, you are paying about 120 points to get a grand total of 5 extra saurus attacks. for the same 120 points you could buy 10 more sauruses, making your unit 8 wide instead of 6. this would give you 6 extra attacks. granted, you can not use these attacks against narrow units, but the only such units that really exists are zombies and goblins. and you will beat them anyway.
It is a gimmick that costs you quite dearly in points AND you risk having your BSB killed since he has 2W T3 and a 5+ save. Im not saying it will never work, but if you went the other way? get a saurus BSB on foot with no flag. give him good armour And a good weapon and he will still not cost much more than the skink. (I mean like LA, enchanted shield and SOM). He has T5, has a 2+ save and 4 S6 attacks. You are exchanging 7 basic saurus attacks (since he replaces a model in the front rank) but you gain 4 WS5 S6 attacks. Chances are his damage output will outshine the effect of the lost sauruses AND you do not risk your BSB in such a careless manner as before.
the only unit where i would ever consider the skink chief an option is a unit of cold one riders, or better yet, a unit of cold one riders with scar veterans for the first rank. then you get some REAL use for those extra attacks (the new chaos FAQ strongly suggests that the cold ones will get the extra attack from frenzy too). Im not saying any of these suggestions are competitive or even decent, but they do have a much better rationale behind them.