[destrux]

The batteries in the PSP aren't just normal lithium ion cells... they're lithium ion polymer cells. You can tell them apart from normal li-ion cells because the cells are flat instead of round like a normal liquid li-ion battery. They're usually called li-poly or li-po batteries, but sony likes to just call them li-ion. These things don't just give off toxic fumes and burn if you short them, they can go off like a propane cylinder in a campfire. Do a search for li-po explosion on you-tube. Impressive stuff.

Anyway, somebody asked if it was ok to use it after it swelled up...

If it swells up it means it was shorted or damaged and you should take it outside IMMEDIATELY and put it somewhere that it won't matter if it bursts into flame. If it does, don't use water to put out the fire, water will make it worse (it actually burns so hot that it strips the hydrogen out of the water and burns it). Cover it in sand after the initial "pop" is over to help put it out. Then soak the battery in salt water for a week to discharge it to zero volts, then throw it away (or recycle it..). If you try to recharge or use a swelled up li-po battery it might catch fire.

You probably shorted it or punctured it with the knife blade when you were cutting the case open. Try cutting very carefully on the other 3 sides of the case next time, and popping that last side apart by hand.