As far as I know it's not exactly a matter of cracking the 2.5 encryption (tho yes for the most part you have exactly the right idea) but instead it is a matter of cracking the PSP
hardware encryption. (so I'm lead to believe but I won't say for certain that this is the case)
What that means is the encryption is hard-coded into the actual processing chips inside the PSP itself and to crack it you would need an EXTREME'LY experienced, (i.e. a professional and probably well paid) hardware reverse-engineer who could use incredibly expensive tools to open up the PSP and examine the chips to try and find the encryption process/algorithm.
As you may guess, this is a very big and probably very expensive job

However if the encryption algorithm is discovered then (and you were indeed right about this) there is absoloutly NO way of stopping homebrew applications because if you encrypt them properly using the algorithm then the PSP wont be able to tell a Homebrew firmware update from a Sony firmware update. (the only possible 'fix' for this is to give all
new PSP's a different encryption algorithm)
This is also why I tell people that trying to do a fake firmware update is not possible without encrypting the new firmware properly. (or more likely, generating a special validation key that matches the new firmware files)
As I said earlier tho I'm not 100% sure if that's how it works or not but I imagine it's very close.