Possible cause for downgrader not working.
I ran into the same problem as a few others where the PSP would just reset instead of overflowing properly and might have a reason why. This might be worth testing for someone who has more time on their hands then I do, so I'll just provide details and hopefully someone can confirm or deny this completly.
The difference for me was to not allow windows to create a preview of the overflow picture. I think windows may attempt to repair the file while creating the preview.
I tried to downgrade 4 times, the first three I would re-copy the files over go through each directory to verify that all the items where in the correct folders (allowing windows to preview the file each time), after the first attempt I formated the memory stick and tried again, after the second attempt I also restored the default settings but did not on the remaining trys, by the fourth time though I was sure I had all the right files in the right places just by copying the files to the memory stick and viewed the photos, success! My PPS was version 1.5 again.
Try 1) copied files, went through each folder
Try 2) formated stick, re-copied files, went through each folder
Try 3) Default settings, re-copied files overwriting previous ones, went through each folder
Try 4) re-copied files overwriting previous ones
If someone could take the time to upgrade and downgrade their PSP a couple times in order to test the validity and post their findings I, and I assume others who try to downgrade, would greatly appreciate getting to the root of this issue.
Before you post please be sure you know for a fact that you did or did not allow windows to create a preview and thumbnail for the image while viewing the folder. Its very easy to forget the details of viewing a single folder...