1.) Sony has not released any plans to make UMDs writable/rewritable to the general public. The dev kits that developers have been sold does contain a UMD slot (it looks like a white computer/tower with a UMD port behind a cover), but they are not able to write their own UMDs. The possibility of writing UMDs is not looking very hot right now.
2.) Only Memory Stick Duo and Memory Stick Duo Pro are compatible with the Sony PSP’s memory slot. The max is currently 1 Gigabyte.
3.) Yes, it has been mentioned that the possibility of downloading PSP demo games from publishers to your computer and then transferring the demo(s) to your memory stick in order to test that game in the future (it’s been said it’ll be ready in 2006). There’s also rumour that a software allowing you to “write” or program your own PSP game and transfer it to your memory stick, but as with all unconfirmed things, this is just a rumour.
I wouldn’t doubt the possibility of Sony vamping up the Memory Stick DUO capacity past 1 Gigabyte (current max), especially with the release of the PSP and many devices which now support the MS:D proprietary technology.
Nintendo’s cartridges, for example, are also expected to increase in size. The minimum capacity (which is also the current max) of DS cartridges is 1 Gigabit, or 128MB. However, the Matrix 3D technology the medium is based off of (which Nintendo invested so much money in!) has the potential to reach 1GB capacity (through bank-switching)—as Reggie said, “128 MB and beyond” at the conference in May last year! It would be possible to see a Resident Evil 2 game with superior graphics than the original PSX on the DS, or even a large game in that standard, to show up for Nintendo’s portable.
I wouldn’t be surprised if Sony would join in the innovation on the tiny cartridge competition with Nintendo, since it would be possible to take advantage of the of the MS:Duo slot integrated on the PSP. And it would definitely eliminate load times.
*Concura