For the first step, use Fairuse to rip the DVD to a Divx file. You'll be limited to 700 megs with the Freeware version, called Fairuse-Lite. This is what I use, have had no problems with, and recommend to others.
Once you've gotten a nice size divx file, convert it to psp format with video9.
Why use fairuse? Fairuse has the ability to set how long of a video you want, so you can cut things out like the credits, as well as forcing proper resolutions, so your movies don't get stretched out like a hong kong kung fu movie from the 70's when played back on the psp.
You can get fairuse here:
http://www.fairusewizard.com/lang_en/index.html