For those that use the Sony PSP to showcase videos, version 3.30 firmware now supports full 480x272 resolution playback. Using Vegas, choose File/Render As/Sony AAC-MP4/Custom and change the resolution to 480 x 272. I also upped the bitrate to 1 Mbps.

You can use any filename and save this to the \VIDEO directory on the PSP. No need to worry about the old naming convention.