Latest sources seem to think that the PSP 2 could rival the PS3 in processing power!

...source also claims that the PSP 2 is a beast of a machine packing enough processing power to produce graphics to match the graphics of the high and mighty PS3′s launch titles. The processor is said to be just over half as powerful as the PS3, but no specifics are available just yet.

However, while the device isn’t as powerful as the PlayStation 3, its components should allow it to sufficiently play games of comparable graphical quality due to the fact that it is rendering to a smaller, lower-resolution display than a full 1080p HDTV...
Read it all - The Gamer