focalist --
(caveat: this is just my understanding of FTs and music, but I'm not an expert)
I don't think it's 500Hz per band. I think that this is giving a total usable spectrum of 500Hz (half the sampling rate). Each band is 7.8Hz, which is far more useful for analyzing music -- remember that the conversational human voice frequency is mostly below 250Hz.
Although human hearing goes up to about 20kHz, and those extremely high pitches are considered important for sound reproduction, they are mostly the harmonics of the instruments, not the fundamental notes so visualizing them doesn't lead anything intuitive.
The frequency of each band is (sampling rate / samples), in this case 1000 / 128 = 7.8.