if an imac can only see 130 of 500, the problem is not the formatting tool.
It was the "Mac OS 9 install" / Drive Setup app that only showed "about 130GB", not the iMac, so much so that @•_indigo_• bypassed the issue by using Disk Utility in OS X. This is a known limitation of Drive Setup 1.9.2 and earlier (exact limit is 128 GB), which is overcome with Drive Setup 2.1.
There's also the hardware-based limitation of 128 GB in older IDE controllers present in a lot of the Macs, but since using barebones OS X didn't manifest the issue, then that wasn't the problem of @•_indigo_•'s Mac, also because booting back into Mac OS 9, all the 500 GB was available. So it
is an issue with the formatting tool.
TL;DR No need for OS X, the drive can be setup and used fully from Mac OS 9.