Nevermind Assassinator, its just the old argument of Transcoding Vs Re-encoding, there's a plethora of articles on it online :P but that's off topic so anyway...

I tried using x264 via meGUI, but its extreme flexibility and customization options really overwhelmed me, I tried the inbuilt PSP profile [after updating] and the settings you provided Hot 'n' Spicy burger, but my final settings [below] from TMPGEnc turned out better quality at a lower filesize! Now im a bit drunk right now [yeah 7:30pm on thursday night what a loser i kno] so sorry if this is a bit rude, but is it possible that the MainConcept encoder in TMPGEnc 4 Xpress is better than x264? I know many people are OPEN SOURCE For the win ALL The WAY EVERYTHING ELSE SUCKS but srsly, you should try TMPGEnc Zinga with my settings below and tell me what you think and if you are prolly more knowledgable wif AVC encoding than me so tell me if x264 can do better than these settings OK id appreciate it heaps! Knowledge is POWAH YEAH!

Anyway, I have attatched the profile I use as a template for converting videos. It is a TMPGEnc profile, so go download the trial via http://www.pegasys-inc.com/en/index.html and give this profile a go! If you couldnt be stuffed, here is the SETTINGS I used, as well as a sample video i encoded with these settings. It is 100% playable on PC and PSP [FW v5.00] and has bvery impressive quality and size!

MPEG-4 AVC
Profile = Main @ Level 3
640x480, 16:9, 25fps [Progressive]
2-Pass Variable Bitrate
Average Bitrate = 768 kbps
Maximum Bitrate = 8000 kbps
Motion Search Range = 255
Bitrate buffer = 0 [Automatic]
Detect Scene Change = YES
GOP Length = 300 frames
B frame count = 2
Reference frame count = 3
Quantization [I/P/B] = 16/16/18
Entropy coding mode = CABAC
Motion Estimation Subpel Mode = Quarter Pixel

As for audio, who cares :P as long as its AAC, 48khz or less, and Low Complexity [I use the default of RAW in TMPGEnc 4 Xpress as opposed to "with ADTS Headers"]

Anyway, here is a video of the MAX PAYNE Trailer, encoded with the above settings in TMPGEnc 4 Xpress. Have a gander everyone! It is playable on PC and the PSP and is decent quality for both platforms! Unknown if desirable for PS3 or 360 I don't have these [my 360 is broken right now and CBF getting it fixed]

...and here is the profile/template for TMPGEnc 4.0 Xpress, as an attatchment. Extract this archive to your My Documents\TMPGEnc\TMPGEnc 4.0 XPress\Template\Export folder and it should appear in the "Output" list when starting a new project [this folder should already exist]. The only thing you SHOULD need to change is the bitrate [from 768 to a higher or lower number] and the ASPECT RATIO to 4:3 [from 16:9] if its not a letterbox source file.

Let me know what you think! Peace!

P.S. The original video was the 1080p H.264/AVC trailer and was about 98MB. Don't have a source sorry I can't remember! Slack I know...