Water is coming in from ALL those areas, over 260 feet of water inflow, water is found 505 feet (bottom of well) up to 220 feet (Static water level). Water is constantly coming into the well casing area from ALL those levels (220-500 feet).
BTW- They will install a pump shroud/torque arrestor.
Why wouldn't the pump get the cooling it needs if it is sitting in 500 gallons of water and constantly submerged with with at all times?
Well I stand corrected on one count. I just checked and you can get a 4" shroud in 4.5" casing. But boy is that a tight fit. However, that does solve one of your problems as that will force water past the motor even though the pump is being fed from above. The tight fit of the shroud might make it tricky to pull and set the pump, but the tight fit is a good thing for cooling the motor.
With a 4" shroud on a 3.5" pump, the motor can get adequate cooling with flow as low as 1.2 GPM. Being submerged in water isn't enough to cool the motor. There has to be .5 feet per second flow past the motor. Even if the pump was set in a huge lake or a well that is 10 feet in diameter, the motor could overheat without a shroud. If there is no natural flow past the motor from the lake or big well, you can be pumping nice cool water while the water around the motor is boiling and overheating the motor. For this reason a shroud is actually more important in a large diameter well than a small diameter well. That is only if the pump is set above all perforations. If the pump is set down below any perforations, a shroud is as important as it is when installing the pump in a lake.
A 4" shroud in 4.5" casing is such a tight fit that if you drop something like a pebble the size of a pellet down the well, the pump may never come out of the well. But it will allow for proper motor cooling when setting the pump below the perforations.
However, the shroud will not help if you have cascading water. If I found water from 220' to 500', I would only perforate maybe 40' at the bottom. Then I would gravel pack the annular space between the 6.5" hole and the 4.5" casing. The water from 220' could flow down the outside of the well through the gravel and enter at the bottom perforations without cascading in the well and churning up the water.
If the water from up high is weak and just slowly runs down the side of the casing, it may not cause the churning effect. But if there is a little stream or two pouring in from up top, it can really stir up the water and make the pump lose prime. Or if you do not pump the well hard enough to draw the pumping level down below maybe 400', there should be enough depth of water to stop the churning before the water gets to the pump. If the driller has done this in that area before, he probably knows which way the water enters the well and should be able to make it work.