I'm assuming you can identify the drives in your server now...
For the non-system drive, connect one of the new 1 TB drives, then use the Windows Home Server console to remove the non-system drive from the storage pool. This may take quite a while if the drive is close to full. Then shut your server down and disconnect the old 500 GB non-system drive.
For the system drive, you should turn on duplication for all your shares, then wait for Drive Extender to complete a duplication pass to actually duplicate all files. After that, shut your server down, connect the new drive in place of the current system drive, and perform a server rinstallation (a sketchy walkthrough can be found
here).
I'm not on the WHS team, I just post a lot. :)