Time to clear things up. Fil's pic is real, you can do it. It's called "USBOTG," a.k.a. USB On The Go. Basicly, the red drive acts as a computer, and will transfer to the psp's memory stick (or any other usb drive device, such as a flash/thumb drive)
while the psp is in usb mode. YOU CAN NOT STREAM LIKE THE MEMORY STICK! This only "copies" the files from one device to the other (But you don't need any hombrew to do this, so it will work on all firmware). As for the MS, there is a max of 4 gigs that can be put on it, hence the reason that Daitel's (a.k.a. Action Replay) largest memory stick hard drive is 4 gigs. Why can you only go to 4 gigs, you ask? The PSP memory stick's file system is FAT16 (or just FAT). Fat is
very old (Introduced for the first time in DOS 4.0). They never thought they would run into drives larger then 1 gig, and the computers themselfs were only 16 bit anyway, so the max partition size is 4 gigs (To all other nerds: yes, I know I'm simplifying it. Not everyone is as well versed as we are...). Thus, everything under 4 gigs is formated as FAT16, and that's what the psp natively reads and expects. Now here's where it gets interesting. Later on the computer timeline, they developed FAT32, which could have a max partition of 2
Terabytes. Doing my own testing, I reformated my 1 gig memstick to FAT32 and the
psp read and wrote to it as it normaly does. Yes, I almost peed in my pants at this discovery. But I found that there seems to be one small problem from geting to huge hard drives on the psp. Because the psp expects a max of 4 gigs, it will
only read and write up to 4 gigs, even if the drive is more then 4 gigs and formated in FAT32. So the limitation is ether in the hardware (not likely) or the firmware (more likely). SO, long story short, you cannot have a memory stick larger then 4 gigs, but you can transfer files on the go if you have a hard drive/mp3 player that supports USBOTG.
For more information on the FAT system:
http://en.wikipedia.org/wiki/File_Allocation_Table
For more information on USBOTG:
http://www.usb.org/developers/onthego/