As I said at native resolution the PSP image is smaller than it is on the GP2X, why would you want a *smaller* image? I see no advantage there.
But it's not much smaller. I believe you said something about a postage stamp. I don't know where you are from, but postage stamps in my part of the world are much smaller than 3 inches diagonally. A 3 inch screen is not small. - it's the size of one DS screen, (with much higher resolution, of course!) Bigger than the GBA screen... A three inch screen on a portable is not a tiny screen. The most popular series of systems (GameBoy/DS) have all had screens that size or smaller.
That said, having a smaller screen is not an advantage, I agree with you there. (Unless you follow the GameBoy Micro logic, that it is crisper.) But it's not that big of a disadvantage. What makes the PSP a better emulation system than the GP2X is that it can do more systems than the GP2X, it's cheaper than the GP2X, it's still in production, better controls...
What makes it a better all around system than the GP2X are those things and, it's commercial support, new games that take full advantage of its hardware, it's WiFi, it's video out, and the screen itself is bigger and higher resolution.
The only thing the GP2X had going for it was a touchscreen - and that was only in the last model. When it first came out, it was cheaper than the PSP - but that didn't last long.