Olympus E-420 has a
10.0MP Four Thirds (17.3 x 13 mm ) sized CMOS sensor and features TruePic III processor. On the other hand, Olympus E-500 has a
8.0MP Four Thirds (17.3 x 13 mm ) sized CCD sensor .
Below you can see the E-420 and E-500 sensor size comparison.
Olympus E-420 and Olympus E-500 have the same sensor sizes so they will provide same level of control over the depth of field when used with same focal length and aperture. On the other hand, since Olympus E-500 has 24% larger pixel area (28.15µm2 vs 22.54µm2) compared to Olympus E-420, it has larger pixel area to collect light hence potential to have less noise in low light / High ISO images.