Well as you probaly know there are many video converting to PSP software. I for one don't really like PSPVideo9 as a first choice, so i use a DVD to PSP convertor. This produces brilliant screens, exactly like the TV. But then again it will only be used for DVDs.
As for PSPVideo9 you can change the different qualitys meaning less quality = less size. Whereas more quality = more size.
Id give a short movie a try with PSPVideo9. It works for some videos and dosent work for others. But you got nothing to lose cause its freeware!