Yes this will work just fine.
As cornelius78 noted, the ME system has to be plugged into the DX2 port. However that still leaves the DX1 port available if you needed to add DX stage boxes to get even more I/O. You can connect one DX32 or two other DX devices (daisy chained to each other) to the DX1 port and still use the DX2 port for ME.
The ME port also sends 40 sources (not 16). While it’s true the ME-500 can only mix the first 16 sources, the ME-1 can mix all 40 sources. You can mix and match ME-1 and ME-500 devices on the same ME network as well. This means even if you start with ME-500 units, if you have a musician that needs more sources to mix you can easy add a ME-1 for that person while everyone else is still using the ME-500.