I entered a personal contribution to my HSA of $3500, but TT only reduced my federal tax due by about $500. That's not right is it??

Yes, I believe it is correct. 

Your HSA contribution reduced your taxable income by $3,500.  You then would be refunded the taxes that were due on that $3,500.

If you are in the 14.3% tax bracket (a combination of the 22% and the 12% tax brackets) that would be $500.  

Ah I see -- thanks!!