I found this a massive problem. I would use popstation to convert my spyro one to an eboot and it only compressed it to about 420mb. And with crash bandicoot is was 500mb. So I started searching around and I finally found a way to compress a ps1 game by ripping the videos and audio. I tried ripping them first manually but the game just kept crashing. So i found the programs.
Step 1: download magic iso. it has to be a cd ripper that can output the cd image as a bin file.
step 2: If you have the original CD select image file from cd drive
If you have a psx iso select iso to bin
step 3: download PSmplay.
Step 4: run the program and under the file menu select "analyze DAO image"
step 5:select only these two boxes
step 6: once the analysis is complete it will ask if you want to save the "psm" data. press yes and save it in the same directory as the bin file.
step 7: download PSXLDR
step 8:run the program and open the psm data you just saved. Then (without closing the program) open the Bin image.
step 9: on the left hand size select rip all. (it may not look like it's doing anything but just be patient. It could take upto 10 minutes.)
Step 10: done! even though the bin file will not appear any smaller it actually is. Because it has ripped all the music and videos out of the archived video files.
Step 11 (optional): you'll notice the difference in size when you convert the bin file into an eboot using popstation. Spyro the dragon is now down from 420mb to 170mb.
links to download programs