Hi.
I cant really rember if the flashing will erase the entire internal HD, but I believe that is does not.
You normally can't acces the internal memory that contains the operating system of your reader via Windows, so formatting your reader will not help.
To be honest I have only flashed the memory of my own 505 reader several times and am a bit uncertain about the procedure on the 500 series but i think that you can flash both the 500/505 series with the same flasher.
You can get it
HERE
Al you need is a SDcard to copy the flashing utility to, then inster that SDcard and folow the instructions given (update firmware) which will REMOVE your current software to leave your reader blank.
After this is done attach your reader to a PC and run the sony update utility with the latest firmware.
Hope this helps.
W.