Thirdhand information out of Tokyo suggests that the PSP will indeed be capable of downloading and playing back MP3 music files.
Izumi Kawanishi, the head of network systems for Sony Computer Entertainment, said in an interview with Japanese publication Impress TV Watch that users will be able to download and playback MP3 files on the PSP via a standard USB cable.
Support for the feature was originally revealed many months ago when Sony first announced the system, but was then quickly taken off the feature list. MP3 playback was put back on the feature list right before last month's Tokyo Game Show.
When connected to a PC via a USB port, the PSP's memory stick slot will be recognized by the PC as a USB mass-storage device. Users can then just drag MP3 files from their hard drive right onto the memory stick and play their MP3's whenever from the PSP. A Memory Stick Duo storage card (today's cards cost about $50 for 512MB) will be required to take advantage of the feature.
According to Kawanishi, the UMD drive will not be accessible from a PC due to piracy concerns.
The PSP will also be capable of downloading, viewing, and playing back files in the AC3, JPEG, and H.264/AVC (MPG4) formats.