Your OS, which includes SP3, certainly CAN handle large HDD's, and the size of 144 GB for your C: drive confirms it is working, so that's not your problem. So, some steps to figure things out.
1. Disconnect the second drive and boot. Does your machine boot up OK with only the original drive connected?
2. If it boots fine with only its original drive but can't boot with the new 500 GB unit connected, let's look for a SATA incompatibility problem. This can happen sometimes with the specific combination of a machine with an original SATA controller (150 GB/s speed), which I'm pretty sure you machine has, and a newer SATA II drive (300 GB/s speed). Although the units are supposed to be able to adjust themselves automatically, some fail to do so. The result seems to be that the BIOS thinks it is having constant errors trying to use that new drive and gets stuck there at start-up. So drive makers provide a way for you to manually force the new drive to slow down to the original SATA speed. Who made your drive? What exact model number is it? Using that info, go to the drive manufacturer's website and look for information on forcing the slower speed of 150 GB/s. On Seagate and WD drives there usually is a small set of pins on the drive back edge with a jumper you can set for this. NOTE that this is NOT for the old Master / Slave system on IDE drives, even though it looks similar with jumpers on pins. The jumpers can be for several things, so do only what the website says for SATA speed adjustment. If your drive is from another maker, search their website. for example, I think Samsung does the job with a software utility to set parameters on the drive board. Whatever you find, try manually forcing the 500 GB new unit to the slower speed, then re-install and see if that solves the problem.
Let us know how this goes.