Answer to Questions
1) You Need The Pandora (Weird battery thing) Yes. The Pandora Battery Allows the PSP to boot in a recovery mode, which you can move back to an old firmware, and flash it , to make it Custom firmware, which will allow you to play homebrew/ISO's
2)If your having troubles formatting the memory card like that, Format it from your PSP, Just go to System Settings, and go down to format memory stick. [its roughly the 7th one down] click it, let it do its thing, wont take long inless you have alot of crap on there, Then you just remove the memory card from the PSP and put it back in. and it will be formated. Remember that last step though! and its good to go. Put all your files on it, Write the IPL and your Good.
If your having any trouble i suggest Watching some videos on youtube by a guy named zzk2001 theyre very informative, and take you step-by-step through the Process of changing your PSP to custom firmware.
And one more thing, Make sure Your PSP is NOT a PSP-3000, or a Newer PSP-2001
PSP-3000 cannot be hacked yet, and some PSP-2001's are un-hackable Like The Blue Madden PSP is un-hackable.
So Make Sure and check, and if its a Phat (psp-1001) your freaken set
Good Luck!