You can do more than just watch movies off that USB ...
Like Copy games and play it off that, i just modded it, and you dont need a mod chip to do any of these things. Im saving my warranty (the lens have problems, ALWAYS). But you do need something thats called Swap Magic.
As for loading games off the USB, welcome to a whole new area of frustration. Mine is the Old PS2 so i added a Hard Disk to it, and converted it to a Media Center. Plus Component Cables make all the work worthwhile!
My Next Purchase would be the PS3! Prices are finally reasonable now.