Olympus e500 doesn't transfer images

Try NOT connecting your camera to your computer.
The best way to download pictures from your camera to your computer involves removing the memory card from the camera and plugging it into a card reader (either built-in to the computer or connected via USB or FireWire). This is likely to be faster than connecting the camera to the computer, and won't run down your camera's batteries.
Once the card is plugged in, it will appear to your computer as a removable drive. You can use the operating system's drag&drop facility to copy pictures from the card to the computer's hard drive, the same way you copy any other files. Or you can use any photo cataloging program such as Picasa ( http://picasa.google.com ).

Try NOT connecting your camera to your computer.

The best way to transfer pictures from your camera to your computer involves removing the memory card from the camera and plugging it into a card reader (either built-in to the computer or connected via USB). This is likely to be faster than connecting the camera to the computer, and won't run down your camera's batteries.

Once the card is plugged in, it will appear to your computer as a removable drive. You can use the operating system's drag&drop facility to copy pictures from the card to the computer's hard drive, the same way you copy any other files. Or you can use any photo management program such as Picasa.
Organize edit and share your photos

Take your camera to radio shack or walmart and you can get a cable from them.

Windows 7 does not support USB streaming for that camera (unfortunately). You will need to purchase an i-link (or firewire) cable to transfer video from your camcorder to you computer. NOTE: Be prepared to buy a firewire adapter for your computer (unless your PC already has a firewire input). You should be able to purchase both the cable (approx. $38.00) and the adapter (approx. $10.00) from your local "big box" electronics store.
I hope this solves your issue.. :)

Be sure that you plug original Olympus USB cable directly into USB port on mother board (ussualy on the back side of PC) not on the front pannel hub and not into extention USB cable.

try using a memory card reader that supports a xd card-very generic plug and play no software to load and computer should recogtnize card-if not open my computer and you will find new drive letters for card reader in there

Have you checked the HP hep site?
Here is their suggestion
Introduction This document explains how to transfer images from the camera to a computer running Windows XP operating system by using a universal serial bus (USB) cable. Transferring the images Follow the steps below to transfer images from the camera to a Windows XP computer. Step one: Connect the camera to the computer

1. Turn off the camera.
2. The camera came with a special USB cable for connecting the camera to a computer. Connect the large end of that USB cable to the computer. Figure 1: Connect the USB cable
3. Open the rubber door on the side of the camera and connect the small end of the USB cable to the USB connector on the camera.

Step two: Transfer the images Choose one of the following methods to transfer the image files: Method one: Transfer images with the HP Photosmart software

1. Make sure the HP Photosmart software is installed on the computer. If the software is loaded, then go to step 2. If the software is not loaded, click here to upgrade to the latest version of imaging and printing software (in English).
2. If images on the camera are selected for printing or selected for HP Instant Share destinations, make sure the computer is connected to a printer and the Internet.
3. Turn on the camera. The HP Import Photos software starts on your computer. If you have set the software to automatically transfer the images in the camera, the images automatically transfer to the computer. Otherwise, in the Transfer images from Camera/Card screen, click Start Transfer . The images are transferred to the computer, and then if there are any still images that were previously selected for HP Instant Share destinations, those actions are started.
4. When the Image Action Summary screen appears on the computer, you can disconnect the camera from the computer.

Method two: Transfer images without the HP Photosmart software If you do not, or cannot, install HP Photosmart Software on your computer, you can still transfer images from the camera to the computer using the Picture Transfer Protocol (PTP) in Windows XP. Follow the steps below to transfer images.

1. Turn on the camera. Windows will automatically launch a program to transfer the images.
2. When the images have finished transferring, disconnect the camera from the computer.
3. If you encounter problems, check that the camera USB Configuration in the Setup Menu is set to Digital Camera .
   1. While in Live View , press the Live View/Playback button, and then press the Menu/OK button.
   2. Scroll to the Setup Menu using the left/right arrow buttons.
   3. Use the up/down arrow buttons to scroll through the Setup Menu to highlight the USB option.
   4. Use the left/right arrow buttons to change the setting to Digital Camera and then press the Menu/OK button.
   5. To exit from the Setup Menu , press the Live View/Playback button.
4. Reconnect the camera to the computer.

Plug it into where?
The camera or Computer.
The supplied cables[2] should match ports on the camera.
If they do not contact Olympus support

Unless someone else on the forum offers something more specific, I'd be very tempted to borrow a USB cable from a friend and see if using that instead of yours works. (Doesn't have to be from an Olympus camera - anything that has the same connectors on - camera, MP3 player, etc lead will do). A.

How do I download images from the camera to view on my computer? With the camera turned off, connect the USB cable to the PC and plug the smaller end into the camera. The camera will turn on and display the selection screen for USB. Use the arrow keys to select the PC option and then press the OK button. The camera will be recognized by the computer as a removable drive. There are instructions available at our web site (http://www.olympusamerica.com/download). For editing and managing image files with a PC, install the Olympus Master 1.0 software from the supplied CD-ROM. After installing the software, connect your camera to the PC via the USB cable provided.