All the homebrew programs I know of work in infrastructure mode, and communicate with the internet, or your PC. I can't think of one homebrew app/game that has been able to send information from PSP to PSP, and I think this is why we haven't seen multiplayer.
As per RedKing's comment, I think it may be the fact that HB developers are left to figure out how to implement the PSPs functions by themselves, without Sony made dev kits. Also, games like Burnout take full teams of developers months upon months to develop.
Your ISO idea is great, though. I think that would be ideal for a shell like system like PSIX. If the UMD emulator could be changed so the PSP was tricked into thinking the ISO was the UMD even after shutting the system down, the system would boot straight to the ISO, and bypass the initial menu loading.