(I) Since $a\_{n+1}= \frac {2a\_n^2}{4a\_n-1} (n\in N^*)$, it follows that $a\_{n+1}- \frac {1}{2}= \frac {(2a\_n-1)^2}{2(4a\_n-1)}$.
When $a\_{n+1} > \frac {1}{2}$, $a\_n > \frac {1}{4}$ and $a\_n \neq \frac {1}{2}$. Conversely, when $a\_n > \frac {1}{4}$ and $a\_n \neq \frac {1}{2}$, $a\_{n+1} > \frac {1}{2}$.
Hence, the range of $a$ is $a > \frac {1}{4}$ and $a \neq \frac {1}{2}$.

(II) Proof: From (I), when $a=1$, $a\_n > \frac {1}{2}$, so $a\_n > 0$.
Then, $a\_{n+1}-a\_n= \frac {a\_n-2 a\_ n ^ 2 }{4a\_n-1}= \frac {a\_n(1-2a\_n)}{4a\_n-1} < 0$,
Hence, $\frac {1}{2} < a\_n \leqslant 1$.
From $a\_{n+1}- \frac {1}{2}= \frac {(2a\_n-1)^2}{2(4a\_n-1)}$, we get: $\frac{a\_{n+1}- \frac {1}{2}}{a\_n- \frac {1}{2}}= \frac {2a\_n-1}{4a\_n-1}= \frac {1}{2}- \frac {1}{8a\_n-2}$.
Since $\frac {1}{2} < a\_n \leqslant 1$, we have $\frac {1}{2}- \frac {1}{8a\_n-2} \leqslant \frac {1}{3}$,
i.e., $a\_{n+1}- \frac {1}{2} \leqslant \frac {1}{3}(a\_n- \frac {1}{2})$.
Thus, $(a\_1- \frac {1}{2})+(a\_2- \frac {1}{2})+...+(a\_n- \frac {1}{2}) \leqslant (a\_1- \frac {1}{2})(1+ \frac {1}{3}+...+ \frac {1}{3^{n-1}})= \frac {(a\_1- \frac {1}{2})(1- \frac {1}{3^{n}})}{1- \frac {1}{3}} < \frac {3}{4}$.
Hence, $S\_n < \frac {n}{2}+ \frac {3}{4}$.
Also, $\frac {n^2}{4}+1- (\frac {n}{2}+ \frac {3}{4})= \frac {(n-1)^2}{4} \geqslant 0$,
Thus, $S\_n < \boxed{\frac {n^2}{4}+1 (n\in N^*)}$.