Once $seen hits 500, it never gets incremented again.

Put $seen = 0; inside the while loop but outside of the foreach.

Update: Although I'd probably do something clsoer to

while(<LOG>){
  foreach my $i (@newips){
    if (/\;drop;[^"]*$i/) {
      print OUTFILE for 1 .. 500;
    }
  }
}
[download]

(Untested)