dcrandall is right. Nero Recode (part of the
Nero Ultra Suite) has complete support for DVD -> PSP. All you have to do is pop the dvd in, turn the PSP on in USB mode, fire up Nero Recode, do a couple o clicks and it encodes in movie in mpeg-4 and copies it to the memory stick.
Add in
AnyDVD to defeat that pesky copy protection and you're all set.
Average 2 hour movie is about 675mb, so a 4gb or 8gb memory stick would be nice...