Md bombed in this country, yes. It did not bomb in Japan.
I've got 5 episodes of anime, 1.5 volumes of manga, a music cd and all of my game saves on a 512mb card with space left over. I'd say thats plenty.
Sure, I'd like a UMD burner just as much as the next guy, but if the format didn't catch on it certainly wouldn't catch on because a burner was available. The primary reason MD "flopped" in this country was the simple fact that the initial MD devices were record/play only. Thus if you wanted to put a music cd on a MD, you had to play it through the audio line-in to the device itself and record it that way. By the time Sony released NetMD(which allowed the conversion of mp3 and other formats for burning on MD), mp3 compatible cd players and mp3 players were available and these offered far more space for the money and were easier to use if you were willing to pay the premium price to get your foot in the door. I bought a NetMD player that I still use, because I don't have even 5 gb of music, so a $300 ipod is a waste of money for my purposes.
Now, back to UMD.. I don't think that this will ever become as big as Dvd, not only because it is a proprietary format, but because they are more expensive and do not hold as much data as a dvd.
They're not forcing anyone to buy UMD movies, memory sticks have always been pricey.. if people think it is too much to pay, they won't buy it.. but so far, they are buying it.
Sony will change if they have to, based on what their sales tell them and I don't think that a UMD burner would help their cause in the least. If anything, it will help prevent game and umd movie piracy at least for a while.
Edit: and as for directions, Psp Video 9 is pretty simple, I haven't tried to use 3GP yet myself. Psp Video 9 allows you to use some presets based on what kind of material it is (anime 0-2 hours, movie, etc.).
I haven't put any live action stuff on here yet, so I've been using the anime 0-2 hours setting with low quality sound (sounds pretty good still, unless you're a serious audiophile) and my 180-200mb divx files compress to around 72-85 mb and are very watchable.
I hope this helps you out somewhat.
Also, psp video 9 lets you copy it to the Psp and it makes the necessary directories on the memory stick for you. Transfer is easy, just stick the psp in usb connection mode and start up psp video 9 and it should find it on its own. (In windows it will create a removable disk also, so you can copy photos and music files directly without any software other than windows explorer)
Edit: one other gripe I just found.. you can't use sony's sonicstage software with your psp + memory stick unless you have a sony brand memory stick. I have a 512mb sandisk and it told me to go

myself.. /joy