I was going crazy because many of my iso's were skipping during the cutscens or during gameplay (Tombraider Legend, Justice League, GTA). Finally found this out on the net somewhere, tried it, and it works PERFECTLY! Seems there is a problem with 4gb cards and the psp. Windows wants to format the memory cards in fat32. But to get the proper results, psp needs the card in fat16. (I tried formatting card in psp menu under 3.40oe and 3.51-3 M33 and had no luck.)
To achieve this, in XP/Vista, you have to go to a command promt and format in DOS. Here's how:

With 4gb card in psp, activate the usb connection. Find out the drive letter from 'My Computer'.
Then go to 'Start'-'run'- type in cmd and then click 'ok'
when DOS window comes up,
format <drive letter of psp>: /fs:fat (make sure to have a blank space between : and / )

my drive letter is H: so it would look like this for my machine -->

format h: /fs:fat

It'll take a while (10 min +/-).. When it asks about 64-65k clusters, hit enter or whatever (can't remember exactly). This is perfectly fine.
Enter a volume label if you want (it'll come up as the drive name in 'My Computer' from then on.)
This DOES work and has been tested on half-dozen psp's so far.
Hope this helps others. If this has been posted before, forgive me, I couldn't find it in the forum searches.
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Edit: As pointed out below, this fix seems only to be necessary with Sony 4gb cards. My bad.. You'll know it if it happens to you..

i posted on this a few months back asking if anyone else had tried it besides me. but i didnt post a how to just ask if anyone else had done it. as for why it works better in fat i still have no idea but i do know the cut scenes that were laggy before i formatted it in fat worked better after. but i only had to do it on my sony card. my girlfriends sandisk card always played everything perfectly.

i have a 4gb memory stick and it never occured to me yet...