go and download the mph gameloader. do a google search for this exact phrase: (I don't know what URLs we're not allowed to post here, but I know there are a few)
google: "psp mph"
The first listing will be "MPH Website - PSP Programming -" click that and then select "programs". Download the "MPHGAMELOADER 1.0.0" make certain that it is the bottom of the 2 downloads. (1.0.0)
Then you wanna put "MPHGAMELOADER" and "MPHGAMELOADER%" in ms0:\PSP\GAME
Put the "MPHgameloader" folder (notice the change in case) in the ms0. you put the flash0 and flash1 folders inside "MPHgameloader" folder in ms0. (ms0 is the root; the first screen you see when you open up your PSP on your comp) This folder should have a 16kb "PRX" file in it. That's how you can tell if it's the right one.
Create another folder called ISO. Put in there your GTA:LCS ISO (make sure it has the ".iso" extension.)
get a copy of UMDEMULATOR v0.8c. Put 1st "UMDEMULATOR" folder in your ms0. (This folder will have 3 files including a background pic)
Then go into the PSP\GAME folder in the UMDEMULATOR folder (the one you downloaded) and put the UMDEMULATOR and UMDEMULATOR% folders in your PSP\GAME directory.
unplug your PSP and take it out of USB mode. Go to the "Game" folder in your ms0 and run UMDEMULATOR. Choose GTA:LCS.iso and make sure the settings are:
Updater Icon - System Menu
Boot.bin - ON
CPU/BUS Speed - 333MHz
Hit X after this brief set up and then you will be brought back to the PSP menu. (the XMB) There, you will see the icon for GTA:LCS just like you put in the UMD. (you must have ANY UMD in the drive THE WHOLE TIME you follow these instructions for this to work properly) DO NOT choose to run the game as you would if you were playing a UMD game.
Instead, go back into the "Game" folder in the PSP menu and then choose to run "MPHGAMELOADER".
Enjoy your ISO.
If you want to shrink your game, follow my tutorial at:
WHAT??? OH MAN, YOUR PSP IS FRIED!!! Just kidding. What do you mean, when you drag the file? What file? If it's on your PSP, there should be a folder called ISO. There shouldn't be an error no matter what folder you put it in, but what screen says that, the PSP or your comp?