The server and character info and chosen prize are not part of the story so I don't see why it would be counted in the 500 words. Some people are however entering stories of far more than 500 words. I think I've seen 2 at over 1,000 words so far. If in doubt, use a word processor with word count functionality, folks! It'll save your entries!
On a side note, Hemingway is credited with a 6 word story:
"For sale: Baby shoes, never worn."