While I love my Playstation Portable as a both a game machine and portable media device, one of the biggest limiations is the fact you're limited to the storage on the memory stick. Even with a 1GB stick, after you drop on a movie or two, you're really limited in what you can store on it compared to an iPod.
About a year ago, I picked up an Asus WL-HDD drive enclosure (available from Newegg for $88). What's cool about it is that it's not only an external 2.5" drive case, but also packs in a 100mb ethernet connection, 802.11g ethernet access point, and an additional USB port for external drives. This is in an extremely small (180mm*90mm*25mm) form factor that weighs only 200g - perfect for travelling or a small home NAS device. I ended up dropping in an old 20GB laptop drive just to play around with it.
Check out the linkabove for full info on how to do it.