I have a read a few books on the PSP. I converted them using a program called PSP ebook creator (txt to JPEG).
The pluses are, as others said, the screen is great, especially the PSP-3000 and I suspect, the upcoming PSP Go. 3 levels of brightness, you can read during the day or in bed with the lights off.
However, I got tired after a while. The JPEG method didn't allow you to save bookmarks. You can't change font size on the fly--you would have to regenerate the entire book. The glare from the screen at night gave my eyes trouble after a while.
If Sony could offer software to provide bookmarks and font changing capabilities, they might have something great for the PSP. Hopefully it would be as flexible as the Sony Reader. Maybe Calibre would support it!
If you are interested, I wrote an article about converting ebooks for the Sony PSP here. I used Cory Doctorow's Little Brother in my tutorial:
Sony PSP an an EBook Reader