OK if anyone's interested to revive their DM500hd the same way I managed to yesterday, here's my story and a couple of steps to follow.
I got the Green Light of Death issue after a simple reboot on DreamEliteBH (DreamEliteBH_DM500HD_13B.nfi) not even knowing about it at first as I left home without a worry about the success of the reboot.
Came home later to see the light was green but the box was unresponsive. I switched it off and on - the light went green and immediately red. Struggled with this situation for a good few hours until DreamUP and Google came to the rescue.
See when you are connected with DreamUP and power on normally, it will just go red again and the app will say "Waiting to acknowledge" and nothing else.
So, first piece of advise:
While powering the box on, also hold the Standby button until DreamUP initiates "Networking HTTP mode". Now the light will stay green and you'll be able to re/flash.
Alternatively you can power on normally and make the Standby press afterwards... result should be the same.
So I reflashed to original firmware 2.8.4 using this method, switched the box off and back on, and bang! same issue- light goes green and innediately red. I started to really worry at this point. Tried to flash about 5 different images, called up my dealer and DMM support, fired up google again but noone had a clue. One guy had an extremely long and difficult writeup on how to revive using linux+nfs server, another one to do some soldering or some such crap, my dealer offered to exchange the unit, DMM offered to RMA it... But Google also advised to use Hyperterminal to see what's going on so this is the path I chose.
Long story short, after a few hours I had become an expert on Hyperterminal and was able to see more and more into this issue. When powered on with the Standby button assistance, the box would be accessible over miniusb/rs232 or telnet and one time I managed the impossible- I could see the unix system roll up all the way to a succesful box bootup! Connected HDMI and I was on Experimental DMM image (experimental-dm500hd_20100729.nfi) with no idea what had actually happened apart from a usual reflash and pressing some buttons on the box. I changed some settings on the image using the remote, rebooted the box and bam! back to square one.
I spent the rest of the day trying to figure out the exact sequence to make a succesful boot possible. Almost gave up but finally I managed to replicate the success. So this is basically what I did (and I also wrote this solution to DMM but they seem to not care about my input so I figured maybe somebody else here might):
1. Connect with DreamUP 1.3.3.6- use both miniUSB and network cable, make sure the IPs are configured.
2. Switch on dm500hd while holding the Standby button and flash an image of your choice- I recommend original 2.8.4 just to be on the safe side.
3. After succesful flash, do not yet switch off!!! Light is still green; Disconnect DreamUP (with the Connect button), hold Standby button for ~5 seconds + press the button a couple more times with short presses + hold for some more seconds. In total you should spend at least 15 seconds fondling the Standby button, lol!
4. Now switch off dreambox, unplug the miniusb cable and then replug it.
5. Fire up Hyperterminal, switch on the box and see it boot up, resurrected from the Green Light of Death! After this you should be safe to flash with any image again, using normal methods.
Hope this helps. 
