Yes you can listen to mp3s, wma through an fm modulator. I use the sylfex aux mod to play games, listen music and listen to the videos.
I watch it (the psp) held in my hand while I wait for my son to get out of kindergarden.
Just do not use the car charger while using it to listen when the car is on. You get interference from the engine, and need a ground loop isolator to stop the noise.
The psp is very nice indeed for what it does.
A regular fm modulator can work good too, so long as stations dont use the same channel as you are. Then your modulator can get beat out by the stronger broadcast signal. This is whY i got the sylfex aux mod. GREAT clarity and you can hook up any thing with the 3.5 mm standard jack to it to listen to the audio source.
hope that helps.
