DigiTimes is reporting that we could see a new version of the PlayStation Portable sporting 8GB of internal flash memory sometime in the second half of this year. The article also mentions that Sony has at least toyed with the idea of using a microdrive for storage (possibly to negociate better NAND pricing from Samsung).
Adding memory to the PSP makes a lot of sense if Sony plans to offer services such downloadable movies via its Connect digital media store or a GPS module which would require storage for maps.