How to convert DVD/videos to Sony PSP video format
This link has the information on how to convert video to PSP Video format, the only format that works. (Hint: You have to stick on the memory stick). It has information on cost of Memory Stick Duos and what the UMD is (and how closed it is...).

Note: if you have a PocketPC, you could just do this with SD cards and Betaplayer which plays DivX/XVid straight.