obviously homebrew is the best use of the PSP, but what's wrong with the ipod exactly?
i have an ipod i use for exactly those things and not the PSP, because the PSP is hideously inefficient as a media player (once again, no TV out, memory stick storage instead of 60 gig internal storage etc)
funnily enough, that would be an ideal PSP... rip out the UMD drive and slap 60 gigs worth of storage ipod-style in it instead, and Sony could release a DVD for every game, which when transferred to the PSP would be encoded with the ID of the PSP itself (thus preventing piracy)
there you go... i've just solved Sony's PSP problems...
if only they were reading.