The PSP is really fussy about where you put files, and you must make sure the files are correctly named.
After you've converted the movie using DVDFab, then all you need do is copy BOTH movie files that DVDFab creates into the MP_ROOT folder on your PSP memory card. Also make sure you have another folder inside the MP_ROOT folder named 100MNV01, and copy BOTH the movie files into that folder. Do the samething with all your movies and they'll be listed on your PSP.
MP_ROOT - Folder
100MNV01 - Folder
M4V00027 & M4V00027.THM - Movie Files
It should all work fine.