Sounds like you need a crash course in digital video. Try
www.videohelp.com ... back when internets, MPGs and DivXs were my timewaste of choice (before first motors, then BLOODY WORK became order of the day) the site was an awesome resource.
That bitrate sounds awfully high to me for what you're using it for. Particularly too I would say, avoid the constant rate encoder setting, you're on a hiding to nothing with that - Variable bit rate (VBR) is where it's at, it's been around since MPG-1 and it's pretty much what MPG-2 and MPG-4 were built for (all pre-pressed DVDs use it, though most home DVD recorders don't, as it means you can't predict the remaining rec time).
Also if you can, source UK-format videos rather than US ones, as they'll only be 25.00fps instead of "30"fps, but will be crunched down to the same resolution (you won't notice the rate difference, particularly on an LCD). Also, if you do use US-spec vids, check first to see if they're 30 (29.97) or 24fps (23.976), as upping a 24 vid to 30 will not only waste space but make it hella jerky.
What resolution are you encoding at, by the way?
A little example in bitrate setting:
If your application uses the entire 480x272 PSP screen, and you're wanting to fit it in a 512mb memory stick, compare this to a typical DivX out of my collection: 640x352 (similar aspect ratio), in about 700mb, fitting a single CDR. Quality is still perfectly good for displaying full screen on a PC or TV (resolution is similar to DVD, and compression surprisingly not much more noticable as the routines are far cleverer).
For a typical 100 minute film, that's 7mb per minute, or,
7168kbyte/min
119kbyte/sec
955kbit/sec
and when you take away the sound (typically, MP3 at constant 128kbit, or VBR around this level), that leaves you with about an 827kbit/sec average target --- or half of what you're currently using.
This also is at 640x352, or 225kpix/frame. Yours will be a maximum of 480x272, that's 131kpix, or only 58% of that screen area ... theoretically you could get away with 480kbit/sec (nice round number!) and still have a watchable movie. Sticking with the 128kbit sound, that's a 608kbit total (call it 624 for reasons of file format overheads) = 78kbyte/sec, 4680kbyte/min, 4.57mb/min, or a grand total of 457mb for your 100 minute movie, easily fitting inside a typical "512mb" memory stick (often more like 480-490 "real" Mb) with some space spare for a few photos, mp3s, or what-have-you.
Playing with this depending on the resultant quality, and/or using a better audio compression format than MP3 (AAC, ogg, posssssibly ATRAC (105k) but please god not WMA) - or even plumping for mono - will free up bits to either give to the video stream, spend on extra minutes, or to just bring the size of the film down.
I've squashed 130 minute films (e.g. Fellowship of the Ring, Spirited Away) onto a single 800mb CD before in VCD format (352 wide by about 192 high, if letterboxed) using the archaic and inefficient MPG-1 format and they've come out fine, with some careful tweaks. Experiment with dropping your bitrate pretty hard - its not like you're going to break anything or have to pay money for each upload is it - and see what your personal quality tolerance level is.
(if you can track down the custom "kwag" vector quantisation matrix* and plug it into your encoder somehow, it really does seem to have a positive effect on compressed quality over the generic ones)
Good luck
*
I SWEAR I'm not just making up words, there!