Is this illegal to do with a prepaid debit card?

Sounds fine, and also pointless and stupid.

There is nothing illegal about it.  But if you are only using this account to deposit and withdraw this $500 what's the point?  

You would need to also check their balance requirements.  In addition to a minimum deposit some will also have a minimum balance requirement.  

Its not illegal, but the deposits might not satisfy the bank's requirements to avoid the fee. Usually those types of policies require a direct deposit from an employer - or - a minimum account balance. Basically they're trying to force you to use THEIR account as your primary everyday bank account.

Personally, I'd just go open an account at another bank. There is no reason to be paying account fees these days. Almost all banks offer some form of free checking/savings account and a debit card so you can spend money from the checking account.

No, it's not illegal. It might violate the bank's policies, though.

I would read the fine print.  They may require the deposit to be in the form of a direct deposit from an employer or the government.  A deposit from you may not count.

No, it's not. You can do that.