Why would a 2nd 500 gb hd show only 127 gb?

Go to Disk Managment and see if there is any unallocated space. Try deleting the existing partition, then create a new one in Disk Managment.
If using XP, Service pack 1 or later is required to enable 127GB+ drives.
Bios needs to be set to Auto LBA.

Did the 500GB HDD arrive in a factory sealed antistatic bag?

If the seal was broken maybe you got a returned drive that some one partitioned and formatted on a system and/or OS that didn't handle 48-bit LBA.

I did have thoughts along those lines, that it had been used before.

What OS and Service Pack are you using? The original version of XP doesn't support hard drives larger than 127GB - you can fix that by upgrading to at least Service Pack 1.