Sources say that the new PS Vita will offer full backwards compatibility with the PlayStation Network’s library of PSP games. Below is that article from eurogamer.net

 

Sony’s PS Vita will offer full backwards compatibility with the PlayStation Network’s library of PSP games, and will offer an optimized experience for each one. PSP games played with the PS Vita will be smoothed and upscaled, and the PS Vita’s dual analogue sticks will also be supported. Sony Bend’s Resistance Retribution has been demonstrated working on the PS Vita, with the second analogue stick now being used to move the character’s view in the third person shooter. PSP games are run via a software emulator within the PS Vita, and the upscaling can be toggled on and off by the player. The PSP backwards compatibility seems to mirror the efforts of the PSP Remaster Series, which allow optimized versions of PSP games to run on the PS3.