The thing is, if you hack it, it invalidates the warranty. I had one but there aren't very many good games for it, but i think it'll come into it's own when the PS3 comes out, as apparently it was designed very much with the PS3 in mind, although nobody seems to know exactly what it'll do in relation to it. The one really good thing about it is the ability to download movies and the like onto it, so basically any video you have on your PC, you can put it straight onto the PSP.
As far as gaming goes, i'd go for the Nintendo DS, both my kids have them and they love them :)