Is it possible to replace the SATA 160GB HDD with a 1TB hdd in a ThinkPad T500? It seems some notebooks don't support large drives.
Generally, yes - most of the larger drives (>= 750GB) use "advanced formatting". That means that the tracks are divided into 4kb sectors, rather than 512-byte sectors. In general, once you deal with advanced formatting, there are no other problems until you go over 2TB, where you need to format it as a GPT (GUID Partition Table) rather than an MBR (Master Boot Record) partition. The considerations related to advanced formatting depend on what OS you are using, so do a search (using whatever search engine you like) on "Advanced format drives vista" substituting your OS.
Some additional considerations in selecting larger drives than officially supported by Lenovo:
Physical dimensions - compatible HDDs must be 9.5 mm thick and not 12.5 mm thick. Do not discard the rubber vibration isolators in order to obtain mechanical clearance to forcibly install a thicker drive. Drives without the rubber mounts are more likely to prematurely fail.
Power consumption / heat dissipation - higher RPM drives tend to draw more power reducing run time on battery, and may operate at higher temperatures.
Data rates - the T500 supports SATA II data rates of up to 3.0 GB/Sec. Faster drives will be limited in throughput rates to SATA II speeds.