In a given mixture, any colour is either in or out of it. The number of possible colour combinations (including an "empty" mixture of no colours) from $n$ colours is $2^n$, but we exclude the zero-colour and one-colour combinations, so $2^n-n-1$ possible mixtures.
Now we need to solve $$2^n-n-1<500$$ $$2^n-n<501$$ We try $n=8$ and get 248 mixtures, less than 501; we try $n=9$ and get 503 mixtures, which is slightly greater than 501. Hence the artist can have at most eight colours on the palette.