Use a number/tally table and CASE. Something like:

INSERT INTO AllocationTable(SourceTableID, AllocatedAmount)

SELECT [ID]

,CASE

WHEN N.Number * 1000 <= S.Amount

THEN N.Number * 1000

ELSE S.Amount % ((N.Number - 1) * 1000)

END

FROM SourceTable S

JOIN master.dbo.spt_values N

ON S.Amount > (N.Number - 1) * 1000

AND N.Number > 0

AND N.[Type] = 'P'