I have a PSP at my disposal and I find it large and cumbersome in comparison to an iPod. Yes, the screen is much larger, but it doesn't fit in my shirt pocket as easily as an iPod. I also have to reformat things I find that are formated for the ipod to the PSP, which is a pain in the ass.
You watch youtube sized videos on your PC from time to time I'm sure, so I don't see it as too difficult to have portability and small size, yet large space. PSP also has limited memory in comparison due to stick size.
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