Dodo said:
If you have widescreen video, you should make sure to add the black borders into the video to have 4:3 format, before you encode the stream, otherwise the iPod will scale the height and crop left and right. I don't know the screen resolution of a PSP, but I'm sure it wouldn't matter so much.
No, you don't necessarily want to add black borders into videos to make them 4:3 format: although the iPod Classic and earlier generations have a 4:3 display, the iPod Touch and iPhone have a widescreen display (480x320) and widescreen videos look much nicer on those devices than 4:3.
Likewise, the PSP plays video back at 480x272. If I were going to choose which sizes to encode for MP4, I'd probably do a 320x240 version for iPod users and a 480x270 for iPhone/PSP users. As has been said before, there's not much sense in making a larger version since MP4 is most likely to be used by users on mobile devices; on "real" computers, people are more likely to go for the WMV (high) stream or just use the Silverlight player.