seren,
Very good questions. Be sure to have a copy of IRS Publication 590-A and 590-B, which you can download from the IRS Forms link at their website. (You can even order free paper copies there.)
Page 29 of 590-A says that after the transfer was complete, you then treat the $6,000 contribution "as having been made to the second IRA on the date it was actually made to the first IRA. To wit, you effectively contributed the $6000 to the traditional IRA and it subsequently incurred the $500 loss.
So, in TurboTax your recharacterization transferred $6000 to the replacement IRA. You need to go back and enter $6000 in the screen entitled "Tell Us How Much You Transferred" in order to get things right. You would still enter the $5500 in the Roth IRA Explanation Statement dialogue.
