Yup, something wrong here. Also, most, if not all, external drives are already formatted when you buy them. I'm wondering if you needed to do that in the first place.
Also, when you looked at the partition in XP, was it going to allow you to format as the entire 500MB? Without the right combo of service pack and drive type, XP has issues trying to create a 500MB partition.
Your best bet may be to claim it was DOA, which it might have been, and try another. Try to access it first before deciding to format it.
