If you want to format your drive as a single 500GB partition with XP on it, your best bet would be to slipstream XP with SP2 and reinstall. Otherwise, the way it is now afetr installing SP2, you'll have the primary "C" partition of 127GB and then have to create another partition(s) with the unallocated space.
This is the easiest slipstream program I have ever used: AutoStreamer