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...but I am very concerned about the lag that may be caused by 500K people playing the game all at once..
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Everyone in the Pool! WHEE!!!!
No, seriously, From what I've read the bulk of the stress on the game in general will be on your machine itself, and will have minimal difficulties working through dial up. As Duality says, there's a cap on the number of people in each town/outpost/whatever, so it's gonna be like a really spiffy chat room, lag-wise.
I've played other games where it did have 1000+ people in one "world" and while it was lag-o-licious, it seemed like it was more a case of thier servers not being able to keep up rather than the player's computer, even the dial-ups.
Naturally, your mileage may vary, but I wouldn't be too concerned- yet. ^_^
Dave III