Different people use different formulas to decide how big the TM backup drive should be. Some say twice the size of the drive your backing up. After using TM for a while, this is way overkill.
If you legitimately have 500gb of data to backup and want to use Time Capsule, then you will need the 1tb model. With the 500gb model, once the initial backup is completed, you would have no room for the incremental backups (and there are no other Time Capsule options in between).
However, if you think you will never use more than 350gb of the 500 available, then the 500gb will work fine.
So here's my formula--If will be happy storing a couple months worth of backups and don't think you will need to go back any farther than that to retrieve data, then you need a MINIMUM of 1.2x the size of the amount of data you will be backing up. 200gb to backup 160gb. 500gb to backup 400gb. Note: MINIMUM.
If two years from now, you will want to go back and retrieve a change you made today, then, you'll need a drive twice the size of the original.