Is psp better than ipod touch for movies?

That's a good question. Let's break it down into pieces.

UMDs (PSP) are about $10-$15, but since they're physical, you can buy them used for about $3. (BETTER)

iTunes: $10. Period.

UMDs are for PSPs. That's it.

iTunes movies work on your computer, iTouch, iPod, and iPhone. (BETTER)

UMDs have to be watched one at a time on physical cartridges, meaning you have to bring one for every movie you want to bring.

With the iTouch, you only have to bring one thing: your iTouch. (BETTER)

Screen Size
PSP: 4.3 in wide (BETTER)

iTouch: 3.5 in wide

In my personal opinion, iTouches are better, but ultimately, you decide.