Screen Size: 3.5 inch 480 x 320 pixels (153600)
Memory: 8GB or 16 GB built-in
Weight: 133 Grams
Price: $799 - $1,521 (Link)
Screen Size: 4.3 inch 480 x 272 pixels (130560)
Memory: Expandable via Memory Stick Duo up to 16GB
Price: $239 - $309 (Link) + 8GB $83 - $151 (Link) or 16GB $196 (Link)
The PSP is a little older and the lack of built-in memory as always been an issue. The PSP has a bigger screen, less pixels and more pixel problems (read dead). The PSP is heavier. The screen on the iPhone is brighter and battery life is better on average. (Need to add sources)
The PSP will provide a whole lot of entertainment on the go at a great price. You would be crazy to buy a media player (such as an iPod) for the same price with all the extra functionality the PSP has at the same price. The iPhone is a very expensive gadget and is comparable in price to a laptop computer.
The iPhone is a phone. You can use the phone, sms and email to communicate. The PSP does have limited phone functionality through Skype, and limited messaging capabilities through web messengers but it can't compete in this round.
The iPhone has Safari built-in and the touch screen making browsing easy and fun. The PSP browser is slow and error-prone.
You would like to think the iPhone would easily win this round but it's going to be closer than you think. The iPhone supports all the usual formats and syncing up your library is real easy but there is one problem, you MUST use iTunes. The PSP can also use programs to sync music, even Sony has free software to do this, but you will probably just want to drag and drop your music into the music folder on the PSP. The PSP supports more music formats, WMA is supported, but not DRM-infected WMA. The iPhone and the PSP make it pretty easy to browse through your music and both support play lists (configured via your computer).
The PSP supports video playback from the Memory Stick, Video RSS feeds and UMDs. The iPhone supports video playback from the built-in memory and YouTube. It's easier to purchase video to play on your iPhone. Although most vodcasts work on the PSP, it's easier to get them working on the iPhone.
The PSP supports full-length PS2 comparable games. The iPhone supports touch and motion sensitive pick-up and play games. The iPhone allows you to buys games through iTunes or the App store. The PSP allows you to purchase UMD games or download them from the PlayStation Store. With the use of UMDS, the PSP let's you buy and resell your games, and they use no storage on the device.
Camera & Photos
The iPhone has a built-in 2 megapixel camer that supports photos but not video. The PSP doesn't have a built in camera, but a peripheral can be used to shoot photographs and video. The camera is not very good quality, but it can be used to point toward the user or away from the user.