I dont know about the best but i use MediaCoder to convert my videos to psp compatible video....... MediaCoder also has a MediaCoder PSP Edition optimised for PSP ...... Try searching it on google... and its free
...... Yeah I'v heard divx/xvid videos are playable on PSP using homebrew program,... But i'v never tried it.
I'm using "PSP Video Converter v2.7" to convert videos.
You can play .flv videos with PSPTube, a application so you can play youtube movies from memmory stick or from internet if you have acess to wireless network.
Super (C). Converts anything to anything (or pretty close!). It's free. It has pre-made settings for most mobile devices (PSP of course). It is also very customizable if you want.
IMHO Video9 does the trick for me, infact I believe there is a link here in the forums "Download" section.
__________________ Made Switchable Pandora
Piano Black slim with Undead Decal
Firmware Piano Black 3.82>3.71M33>4.01M33-2>5.00M33-6>5.50GEN-B2 ~
Red GoW addition 3.71>3.72m33-2>5.00m33-6 ~
Grey 4.01>5.00m33-6 UV Trigger and door LED's