only PSPtube will allow that and to use it, you need custom firmware. If you have PSP-3000 series, you are out of luck. That PSP cannot be hacked. Check what model your PSP is.
From the sound of it, you are playing on a plasma TV and playing the game on standard definition. Using the yellow cable for video will only give you SD, not HD. standard definition is not widescreen, so the bars on the side compesate for the empty sides. This only happens on plasmas since LCD...
only a custom firmware is needed. After that put the files you want on the memory stick, but you have to put them in the right folder. It's something like PSP/pictures or movies. for games its PSP/games (for PSP games its /ISO after games