It is.
http://psp-news.dcemu.co.uk/pspdosbox.shtml
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It is very possible for an emulator to play a zipped ROM, even a RARed one in theory, that 's the emu though. ISO files could be considered a type of compression, and are runnable. (Won't delve any deeper due to forum rules.) Anywho, can you zip/rar and unzip/unrar on your computer, no huge demand for a PSP variant.