rdg, welcome to MobileRead, glad that you're here.
(BTW: that's NatCh tipping his hat to you as a new member. I don't wear a hat.)
For $20 it is a no-brainer, go with the new 505 model. Not only is the screen better than the 500, it is the only one that Sony has confirmed that they support the new Adobe Digital Editions software on. (While we hope that they will also extend this support to the 500, they have not promised this support.)
Additionally, the new 505 has more internal storage for books, more capacity for add-in memory cards, a new case style, the ability to be seen by you computer as a USB device that the 500 lacks, and perhaps a more recently manufactured battery. The only thing you lose by selecting the 505 rather than the 500 is an AC charger in the package but you can use any USB connection to charge it.
As for gray levels, you do not adjust them, it is internal and determines how the unit renders graphics.
Although I have yet to find enough new features to buy a new one, I will be happy to swap my older 500 for your new 505 and pay you the $20 plus both shipping charges, and a little something extra for your effort.
In short, get the 505 and don't look back.