Sony has really improved on the ATRAC format for the PSP.
Sonicstage (available here ) works great. This program connects to the PSP and allows you to transfer music files over to it (both ATRAC and MP3).
Also, ATRAC3plus files are now compatible with the Pro Duo memory sticks.
For anyone who doesn't know, ATRAC is Sony's music format (much like WMA is MS's). The format compresses better then mp3 and it doesn't lose the sound quality (for example, a 64kbps ATRAC file is comparable to a 128kbps mp3 file).
The biggest problem with ATRAC was Sonicstage used to suck and the format was locked down with way to much protection. Now that those are mostly taken care of, the format is more open.
I'm in the process of converting all of my music over to ATRAC (since my PSP is my music player), and I've had no problem with it.