I think the battery life sucks for vids and the screen scratches way to easily. If the PSP had a big harddrive like the 60GB iPod and a better music menu, it would be unbelievably good (The PSP screen is way more scratch resistant, bigger, and nicer all around, plus battery life is better for vids). At the same time, the solid state of the memory sticks that the PSP uses provide faster loading times and aren't prone to failure like a standard iPod hard drive is, so unless you have a gargantuan sized music library that you must have on hand at all times, there's no point in having 60GB. A 4GB memory stick is sufficient for me.
I have to admit that the menu is quite handy on the iPod for browsing your music....that's one thing that could be improved about the PSP. And the PSP is taller because of the larger screen, so not the best for jogging, etc, but it is quite light and slim.
So for all around media functionality and performance the PSP takes the cake IMO.
But if all you plan to do is listen to MP3s on the go, get an iPod of course
However, I do think it could be improved in some ways.