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Music and pics run fine and great on it without homebrew (and I can play music in the background while reading manga I copied to the memory stick), but the movie playback is indeed quite a bit limited. (although I expected as much) It won't take any of the avi or mp4s I have on my comp, but it shouldn't really be a problem when I feel like actually taking the time to look up how to get PSP-viewable avi's. When I'm done with Crisis Core. (love that game )
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Well you clearly stated that the main reason you bought a PSP is to play games so the cw is really a plus for you. The video format is not a big problem i know a very good program that make very good conversions and fast.
http://vemode.coreforge.org/
I never had a problem so far and the PSP screen is made it so you can hardly see mpeg compressions