First off, the PSP doesn't use SD cards. It uses "Memory Stick Pro Duo" cards. I would probably suggest going with the PSP Slim since it's newer and has more potential features, you can always get the larger memory stick separately. Though they are expensive.

As far as emulating stuff goes, as far as I know it involves hacking the PSP. You forefeit nothing (except warranties and other legal stuff) if everything goes right, but if you do something wrong you may have an unuseable PSP. I think there have been some homebrew developments in the 'unbrick your PSP' area, but I don't know too much about it.