i have both.

in stock form, a PSP is practically useless for playing music because of space constraints unless you get the memory stick (like you said), which adds to the purchase price. also, you have to buy orig movies in the special PSP format and they're super-expensive. pwede rin siguro i-download sa mem stick pero hassle and i'm not sure they would fit.

pros of the PSP - excellent graphics, ability to play games.

pros of the iPod - if you don't need to play games, and don't mind the smaller screen, then this is much easier to use and view/play files (i assume you're talking about the iPod with video btw).