PSPs using custom firmware can process ISO files the exact same way as they process UMD disk games. When the ISO file is placed onto the PSP's memory card, a link to the ISO file is placed on the PSP's main menu. Once the ISO link is selected, the PSP mounts the ISO file as a UMD file. This essentially converts the ISO file to the UMD file system.
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Connect the PSP you want to install the ISO game on. Make sure there is a memory card in the PSP's card reader which can be found on the side of the PSP.
Copy the ISO into the "ISO" folder on the PSP's memory stick. When you have custom firmware installed on a PSP, the PSP automatically converts the ISO to a UMD readable file which can be played from the PSP's memory stick.
Unplug the PSP from the computer and you can now select the game from the PSP's main menu. Select the game by pressing the "Cross" button on the PSP.
Wait as the game loads up on the PSP. You can now play the ISO game the same way you would play the UMD game. You can press the "Home" button once you are finished playing the ISO game to return to the PSP main menu.
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