So apparently, the Memory Stick used by the PSP can be formatted in two ways: Either using FAT16 (FAT) or FAT32 file system. FAT32 saves a lot of space with smaller files due to smaller clusters, but FAT16 file access can be a bit faster under certain circumstances.
The Memory Stick format function of the PSP supports FAT16 only, FAT32 can only be achieved by formatting the Stick from Windows (or other external software).
What do you use on your Memory Stick? What do you think is the better choice of the two?
Note: You can identify the file system used by your Memory Stick by hooking the PSP up to a Windows PC via USB and right clicking the PSPs drive letter and selecting 'properties'. Look for the entry under 'file system': FAT is FAT16, FAT32 is, obviously, FAT32.
For more info on FAT, refer to this Wikipedia entry.