yes, you do. You can download a free converter which converts the files you want into PSP format files. The problem is that converting files takes a while. So if it doesn't come in the format that the PSP plays originally, you can't just copy paste and viola, in a minute you're done. No you have to wait (ex: 9 minutes for a 40mb file to convert)
worth it though to put all the porn on it though
I'm not sure how it is for the PS3 though.