PSP cannot read/play normal VCD,DVD formats along with DIVX,XVID.Thanx to DRM which was implemented to stop piracy.But you can use
http://www.videohelp.com/~pspvideo9/...o9_Install.exe to convert any or video into PSP compatiable format which is playable on ur PC also.
I use my PSP to watch LOST,PRISON BREAK etc. these series are HDTV RIPs and their size is 349 mb each and video play times are around 42 min each.When I convet them into PSP format they come around 270 mb.But they can go down upto 165mb with good quality but I am bit fusy about high quality so I dont mind size.
Anyway a English movie with good quality comes around 400mb.And if you have 2gb(1.8 gb actual storage capicty) memory stick with you can fit more than 4 movies in it.