One of the main reasons that I bought the PSP was it’s ability to play movie files from the computer. With the 32 MB Memory Stick Duo that comes with it, this is really not feasable. You at least need a 256 MB Memory Stick Pro Duo or a 512 MB one, which I have. There are 1 GB memory sticks but all of them can get a bit pricy ($75 CDN for a 256MB, $108 for a 512MB and about $225 for a 1GB stick) so save up first.
The next thing you have to do (I guess I can assume that you all know you need a PC with a USB port, the proper USB cable for you PSP, the internet and some movie files on you PC, right? Right….) is to download the software to convert your video files (MPEG, avi, wmv,) to the mpeg-4 format the PSP uses. One program is iPSP (http://kaisakura.com) which also can be used for transfering photos and mp3 files to your PSP, though you don’t really need the program to do that (you’ve read the instruction book, right? RIGHT?). The converting of video files is pretty easy to do and you can adjusting the setting to reduce the size in exchange for quality. The thing is that it has problems with some bigger files and some file types (quicktime mostly). It also cost money ($30.00) to get the full version. The only thing that I can recommend it for is the game save storage option that backs up your PSP games saves everytime you start the program up with the PSP plugged in. I think that is included in the freeware version.
Another program is the PSP video 9 (http://www.pspvideo9.com/). It is solely used for converting video files and transferring them to your PSP. The best feature about this software is that you can store those converted files in a folder and copy them or move the file completely to the PSP (no copy of the file will remain on the hard drive). This also include moving file from your PSP BACK to the computer. It is freeware (though they do ask for a donation on the program startup screen). There are some issues with some files, but on a case by case basis.
The third program that I can recommend is the rather bare boned 3GP converter (http://www.nurs.or.jp/%7Ecalcium/3gpp/) The site is in Japanese but the program has an English setting and a setting for the PSP [Customized MP4 , for PSP (Direct, renamed)}. Unlike the other two others mentioned, there is no help file for this and you have to make the appropriate folder on you PSP for you movies as explained in the instruction manual (whcih I know youv’e all read). You can adjust your video quality settings to create a smaller sized file with 3GP as well. The only problem I have encountered is that sometimes with this programm the audio becomes out of sync with the video, mostly in the cases of large files.
As for putting videos from your DVD into a format that can be transfered to your PSP, check out this site http://www.engadget.com/entry/1234000980024404/. Be warned as this will require at least a 512MB or a 1GB stick.