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My 2005 works the same as my 1999 (1500) and my Ninja 250: All start in neutral or in any gear with the clutch disengaged.
Varooom
Unless I'm missing something...
My 2005 MUST have the clutch in to start the bike regardless if it is neutral or not (As long as it's on the kickstand. Haven't tried it without)
I adjusted the heel toe shifter this weekend and noticed that it would only shift between first and neutral whether the bike was on or off until I got going.
This is a fairly complicated circuit. I looked at my service manual, and I think the problem might be the starter lock out switch. I have an '01, so there might be a different name for it on the '99. As far as not being able to get to 2nd gear with the bike not moving, this is the positive neutral finder doing it's job. One might wonder why you'd need to get to 2nd with the engine not running, but we had an incident this past summer with one of our ninja training bikes, (key left on over night) and it sure would have been nice to be able to shift into second, or third, to bump start it with an almost dead battery....The side stand switch cuts the ignition if the stand is deployed while in gear, and the lock out switch keeps the starter from turning if the trans is in gear with the engine running. It's bypassed by the clutch switch, but the charging system has an input into the circuit to prevent the starter from running if the engine is. This saves on starter and starter drive components. Saved me more than once while I was making the transition from H-Ds to the Kaw....(hint, H-Ds have a turn signal switch on each side, so canceling the right signal.......) 
Bike should start in neutral without depressing clutch.
When you start the bike, and it is in neutral, what happens when you release the clutch (still in neutral) ... do it slowly in case the bike really isn't in neutral.
Bleed the clutch lever line; might have air in it which limits its intended travel, not fully disengaging the plates.
Varooom
You will be able to shift into any gear in sequence with the clutch engaged. With the engine running you can shift into any gear, but you obviously will kill the engine if the revs are too low when you release the clutch.
Maybe I'm missing something here but why would you be shifting to 2nd gear from a dead stop..to me that just makes the clutch work harder
Bill here iI have a 02 1500 and some times my ligt will be on but i am in gear so when i put my kick stand down my engine shuts off. I also believe don't trust the light
it is a 99 it is in nuet and the light is on maybe its a 3 way switch the light part works but the start interupt doesnt,so glad to hear its normal not to shift into 2nd form start thought I screwd up the shift barrel or something
As has been indicated... make sure its really in neutral.
Then start checking the various switches... the clutch switch and kickstand switch for example. Seems to me I had a similar problem once and it was a loose clutch switch connection.
Not sure what year you have, but my 99 will not shift into 2nd unless I'm rolling.
For the clutch, you might make sure you are in neutral. Ive always been told to not trust the light, and sometimes it has been wrong on my bike.
my nuetral lamp is on its in nuetral but i have to pull the clutch to start most of the time,and is it normal to only get the bike to go in first from nuetral it will not go in 2nd unless im rolling in first?
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