I love my PSP, it is great for what it is...the ultimate 'keep me busy on a plane or long road trip' device.
Fun things to do with it:
1. Leech the archives of your favorite webcomics and resize them to fit the screen. Toss them into folders by year (or some other organization method) and, tada, webcomic viewer of awesome! I have every DrMcNinja, Penny Arcade, Diesel Sweeties, and Scary-Go-Round loaded...they don't even take up that much of my 1gig card.
2. Watch movies. I use PSPVideo9 a LOT. You can upload youtube videos, ( using
http://www.ripzor.com/youtuberipper.html ) full movies (a full length DVD quality film is about 600 megs), tv shows, etc. I also have a bunch of UMD movies, which frees up my memory card...I bought those when I had some cash to burn, but unless you're going on a really long trip, I'd just recomend you get a 2 or 4gig card and load it up...they can be had for less than $100 these days.
3. Listen to music. This is a pretty weak function, but it is robust enough to handle a few albums. You have to look at it differently than you would an ipod, and just put the music you actually think you are going to want to listen to on it.
4. Play Lumines. Seriously, this is the PSP's killer app for me...I don't even take it out of the UMD slot anymore.
5. Play Super Metroid. And Metroid II. And Metroid. And Super Mario World. And Yoshi's Island. And F-Zero. And Super Mario Allstars. And various pokemons, final fantasy's, and chrono triggers. Emulators don't take up much space on your memory stick, and I have every NES, SNES and GB and GBA game I've ever owned, played, or wanted.
6. Play...other games. I'd love to check out Dexter, Liberty City, etc etc, but honestly, there's never been a time I've wanted to be amused that my current purchases and downloads haven't been up to the task. I'll probably be buying God of War PSP though...