If not, what do I need to tell the financial institution who issued the 1099-R to do to correct it?
Yes, the $500 that was rolled into a Roth IRA would be taxable income.
A traditional 401k implies that the money that was contributed is pre-tax money. When pre-tax money is rolled into a Roth IRA, then the amount rolled over becomes taxable since Roth accounts are funded with after-tax money. You do not need to request a corrected 1099-R.
Even though that $500 is essentially being double taxed?
A Form 1099-R reporting a rollover from a 401(k) to a Roth IRA should have amounts in boxes 2a and 5 that sum to the amount in box 1. Under these circumstances I would not expect there to be any amount in box 5, so box 2a should show the same amount as box 1. If the Form 1099-R provided by the payer has a zero in box 2a, that's probably a problem.
The $500 is not being double-taxed. Your employer has excluded from the amount in box 1 of your W-2 the amount shown with code D in box 12 of your W-2.
I might have phrased this question incorrectly. I rolled over a traditional IRA (not a company 401K) into a Roth IRA. As a result, this $500 is not backed out of my W2.