Makayama software offers the Mobile Media Maker for the Sony PSP that makes it very easy to convert videos from hard-drive, CDs or DVDs for the Sony PSP.

I just tried this software with an AVI from a TV show and it worked great. The video look awesome on the PSP. Especially the zoom mode where the 4:3 format of the video gets blown-up to use the full 16:9 screen looks surprisingly great.
Engadget published a while ago a How-to guide on getting movies onto the Sony PSP memory stick for free. The Mobile Media Maker hides all the complexity and has a very straight forward user interface.
There is a trail version available that allows to convert 2 min. of video. The full version sells for $34.95.
Sony sells the Image Converter 2.1 in Japan that also allows to upload video to the PSP. Sony most likely will release a english version of the software eventually.

Pre-Order the Sony PSP on Amazon.com Now!

See also our Sony PSP Photo Gallery and the Sony PSP Center with all deals.