2.80 plays 480x272, if it's Motion JPEG
When PSP-Vault tooled with the video functions of Sony's Firmware 2.80 for the PSP, finding that its video playbacks were limited to a rather smallish 320x240 pix rather than the 480x272 the screen can handle, they missed out on something. zmcnulty found out just recently that 2.80 CAN play 480x272 vids without the need of homebrew. If the vid was encoded in Motion JPEG, that is.
Motion JPEG is a video made up of a flipbook of JPEG stills - literally. Many digicams still use Motion JPEG as their video capture format since, well, the camera's set to cap JPEG stills anyway. There is a big disadvantage to using Motion JPEG formats, however: they're huge. By way of example, zmcnulty converted a 40-second, 2MB XviD file into Motion JPEG, and it ended up taking 20MB. Guess we'll be needing more Memory Sticks...
And there's one other thing zmcnulty's wondering about: Why didn't Sony publicize this? He says,
That's an excellent question, and one I'm struggling with myself. Perhaps the same reason many speculate they have disabled the playback of 480 x 272 video in MPEG-4 or AVC/H.264: they don't want to hurt sales of UMD-Video.
Of course, there are reasons why some people won't update to 2.80+...

Source:
PSPUpdates &
PSP-Vault