Well do you want Music or Games? Ipod for music, and PSP for games. You can't really do a which ones better debate since they are two totally different pieces of hardware even though they can do some of the same things the each do their main function far better then the other.
ipod is great for storing music, light weight and small. PSP on the other hand is built to be the batman utility belt balancing music/games/movies/and others on it. I went for the PSP because not only I listen to music but I know some days I NEED TO GAME.
PSP's are for nerds. iPods can store months and months of non stop entertainment in the form of music. And then you can hi-jack other peoples music in the car that sucks and use your iPod to wield power.