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Discs for PSP have nearly the capacity of normal PS2 discs. And PSP has only a little bit less power than PS2.  Look at Ridge Racer or Metal Gear A.C.I.D. Maybe the modding scene will bring out some tools to port old PS games, connection to PSP wouldn't be a problem, it comes with a USB data link. And DIVX codec for movies Nice toy  |
I was answering your question about whether the PSP was compatible with PS1 games. The answer is obviously no because they take different disks. Whether it can be easily converted or not is a different issue but I beleive that the answer to that is no as well. Its probably easier than porting a PS2 game to Xbox but it's still not easy.
I think (hypothetically) that the DS would be a cool gaming system for a 2d Oddworld game. The two screens could extend the playing area so you aren't restricted to a small world-view and I'm sure they could come up with something for the touch screen. Whereas a PSP version would be much the same as the old games so it wouldn't be too revolutionary. But this is all hypothetical, I doubt it will ever happen.