Hi Blinky88,
First, I'd like to say welcome to ClubSnap and to the Oly community. I feel really honoured by you, diging out this more than one year old thread. Especially honoured by the fact that your first post is posted as a response in this thread.
Thank you for sharing your story. Very interesting read. I am happy that all went well for your wife, less happy about your health. I can just say that interpreting your condition there is another argument for the Olympus system, that is the weight. I suppose you are not happy about having to carry heavy lenses and cameras. OK, the E-4xx is even smaller and lighter, but the E-500 is not bad at all.
As for the question regarding the Leica lenses, yes they can be used on any 4/3 camera. There is just one 'BUT'. That is the E-500 (and the other consumer level) cameras view finder. Some people find manual focus a bit difficult through the VF. If your eye sight is good enough and you don't expect to use the lenses for action than it should work out fine. I never really had problems with my camera and my manual lenses, I have OM, PK, M42 and Nikkor lenses, all work fine. If you are not sure, one single adapter costs about US$20, so it is not a big deal if you can't use your manual lenses. I always buy adapters via eBay and so far I only have positive experiences from every one of my sellers. You can also buy chipped adapters. These are more expensive, but will let you get focus confirmation beep and LED indication, just like any AF lens, except that your hands work as AF motor. These are functionally very reliable, but not always mechanically very well build.
BTW, my story with the E-500 has come to an end in February 2008. I sold the camera to a work mate together with my 14-45 kit zoom. He is still a happy user of the camera and the lens, and we are still in speaking terms.

Personally I moved on to the E-3. The other major upgrade I have done is that I bought a 14-54 in June 2007, which I am also very happy with. I am about to buy the 50-200 SWD, but can not make up my mind. I don't know if Olympus will continue to support the lens or not. The fact that there is no new firmware to enable contrast focusing worries me a bit. All new cameras have that feature and some lenses got an update. If I am going to invest such amount in one single lens, I have to know if it is supported for the next generation camera body as well. I am not a pro, and even if my photography as hobby is more than well pay off through my images, I can not spend that amount on a lens unless I know I have full use on the next E-X body as well.
Anyway, I wish you good luck with the E-500, it is really a nice camera until you need to use ISO above 400.
I dont know the flash you bought, but I think you should find out if it has high trigger voltage or not. While not clearly documented by Olympus, the general concensus is that only flashes with low trigger voltage should be used. Some people say they use high voltage flashes, but that information is from the Internet, so take it with a grain of salt. According to me, its better to be safe than sorry, so I dont think it is advisable to use those flashes.
The lens you have is the cheapest and the worse kit zoom Olympus ever made. I have one such lens as well, but while the image may be OK, the AF motor is really painfully slow. Of course, generally any AF is faster than manual focus, regardless what some people say. If you ever consider to buy a new lens, the 14-42 is a very good light weight alternative. It is both higher quality and a bit wider, which is good, but also a bit shorter which is not good. If your budget allows and you are not bothered by the weight than the 14-54 is the best short zoom lens for the camera. The 12-60 is just too large, heavy and expensive. It is also slower aperture wise and the focus speed advantages (if there are any) are not noticeable on the E-500. Remember, the SWD lenses are mainly made for the E-3.
Another advice regarding the E-500 is to only use the centre AF point and use the camera in S-AF mode also. Also, if you ever want really very high technical quality images than you should shoot in raw, use Olympus Master 2 to convert to JPEG (or TIFF) and then you can edit in Photoshop. There is quite a bit of difference, and if you think the camera creates great JPEG images, through raw (ORF) you will get even better results.
Anyway, once again good luck, welcome to CS and don't forget to post some images.