Well despite the misinformation and other things, as an owner of both they both have limitations, both of which can be overcome somewhat by hacking them (which offers you the penalty of bricking or reverting for both).
Some people here seem to be far too pro-iPod, the Archos is a much better web browser, movie viewer (and recorder BTW), and has 30+ GB of storage so all your PSP criticisms apply to the iPOD touch in that respect. Also like the PSP the Archos can stream live video to it, while the iPod currently can't, and the PSP actually has Location Free Player TV in Europe and ASIA (North America is too DRM-infested to allow us such beauty).
Like Adras earlier I own both I bought the PSP shortly after launch (after the initial price dropped and dead pixel issue was overcome) for it's great internet browsing at the time, and I got the iPod touch this Xmas as a gift from my truely pro-Apple dad, who likes them so much he bought the company... (I believe the gift was to get me to finally own an Apple product

).
Anywhoo, although the purchase has been made, I think I should point out for others who might stumble on this like I did for other info, that there are many major drawbacks in the iPod touch compared to other player/browsers/etc out there (especially without hacking);
Like no direct downloading of RSS feeds, pictures and video from feeds on the web, unlike most other players including the PSP; also right now (prior to next update) no drive mode for the iPod Touch; if you're not on a MAC then iTunes is a heck of a resource hog compared to other synch apps; ipodTouch will not find SSIDs which are blank, it doesn't even know they exist (this is also a 'feature' of most MACs) I noticed this on Xmas day when I tried to log in to an open wifi near the TTC that my PSP had no trouble detecting it and logging into and immediately downloading netcasts from twit.tv , pixelcorps, the hour on CBC and Meet the Press (all RSS feeds on the PSP). Also the ipod prefers to jump around on connections even if you have it selected and directed to stay in touch with the one you want. Some websites also cannot be accessed that can be on other mini browsers (never had a one that my PocketPC couldn't access other than YouTube which the iPT has it's own portal for [won't access content directly either]); also the iPT default all browsing to mobile/portable site locations like NFL.com, etc. Games on the iPOD suck, and anyone using the GBA as an example doesn't get that GBA games suck to begin with, while if you're hacking the PSP can be hacked to play MAME, NES and PS1 games in addition to it's own library (still hate the mediocre analogue stick though, but it's better than iPOD or GBA controls). You cannot replace the batteries to add more time if you don't have a charging option.
The PSP isn't without it's faults too, it cannot support higher levels of flash as noted, it runs out of memory on many sites (which even the firmware updates didn't help [go to digg and it dies halfway through, and forget opening many windows on busy locations]), it is a little slower at browsing too (but that's like saying a man with one leg blown off at the knee is faster than one at the hip); it does rely on memory sticks (which can support up to 16GB FYI to the knob who said only 4 [I was thinking about ading 8 GB for $150 when I got my Xmas gift which made it redundant, but at $150 for a PSP + $150 for 8GB of memory stick it's in the iPOD's price range]), although it also means you can swap out memory sticks for more content (and it had access to the UMD on top of that [which to some is a negative and for other a positive]); the PSP does churn through it's old battery technology faster than the PSP which may mean you NEED those extra batteries sooner. The PSP is bulkier, even in it's slimer model, although the PSP always fit in my shirt pocket even with my Armour and flip cover adding to it's dimensions. BTW, the only people who looked at me sideways while watching it were people who look that way at iPod touch users as well either out of envy or because they are luddites. Most adults appreciate the beautiful picture of things like TopGear being displayed.
But the most killer "they don't have it" app in the iPod's favour is iTunes, which is great if you listen to podcasts, otherwise it's a DRM infection as bad as anything Sony or M$ would've come up with since you're still mainly better off buying CDs or DVD-A/SACDs, especially if you have an ear for music. But for podcasts, RSS isn't as handy on the PSP because it's not automatic, whereas now with the iPOD I just leave my PC on overnight running itunes and Folding and in the morning I have all my podcasts (video and audio) ready for my train-ride to work.
Archos does have an aggregator, but it's not quite as handy, but pretty close for podcasts.
For gaming the PSP is King, for Websurfing the iPOD is damn fine, but for both audio and video playback the Archos beats both of the, and surfs pretty well too, just missing out on the game play functionality, but unlike either of the others the archos allow you to record directly to the unit without a PC.
Anywhoo, personally I like both my PSP and my iPOD, but I use them for what they were meant for, gaming and video watching on the PSP , and podcast listening/viewing and websurfing on the iPOD. However if I was spending my money from the start now with neither in my posession I would buy and Archose 605-30GB without question, and that would be my recommendation to anyone else.
This is like the Mac vs PC debate (as if a Mac isn't a personal computer) which totally ignored all the benifits of Linux, this thread focused on the two options as if either was the 'best' at doing everything, whereas the only true kings here are PSP gaming and iPod's iTunes. the players as media devices are both terribly limited, especially by their respective master's DRM etc, and they only even come close to shining when they been freely hacked.
Anywhoo thus ends my rant as an owner of both haked units and still preferring the Archos I had my hands on in November while initially contemplating a $200 8GB memory stick.