So let me get this straight... you bought a 5 year old device for $40 and are disappointed it is not more powerful than a PSP? Wow.

Seriously, the N810 is a very nice device. Rather than scorn it as garbage for what it can't do, dig a little and find out what it can.

Thedead already gave you a pointer to converters so you can watch videos (I used to do this all the time with my N800, which is the same device, sans keyboard) and found it plays videos very nicely.

As for installing software, this is a true Linux device (unlike Android, which is a Java engine running on a Linux kernel)... just use the built-in application manager - there's a ton of software (including many games) just a few clicks away.

If you have any inclination for learning Linux, this is a fantastic device. If not, you probably should have done some research before making an impulse buy of something you don't want.

As far as it being "flashed"... I think you're thinking this is something it is not. This is not a locked down cellphone or game console. No flashing is required to install whatever you want. As Addison already said, this is a hacker's device... it was never locked down in the 1st place.

For what it's worth, my wife loved her 770 (predecessor
to the N8x0) and used it daily until I bought her an iPad. The iPad cost 5x as much as the 770 did, just to keep things in perspective.

Also, the N900 *is* a phone, but it too is unlocked in every way. It is dramatically more powerful than the N8x0 devices and even has 3D hardware, but it won't emulate hardware newer than itself either.

One thing you should be aware of, your timing could not be worse. Nokia just abandoned everything not related to windows phone, including all Maemo devices. The repositories are in a state of flux as they transition into the hands of the newly formed nonprofit, Hildon Foundation. If you can't install software via the application manager, that's probably why. Give the guys a chance to work out the problems with the new servers and you'll find more software available than you probably care to read about.
For the mean time, browse and search through garage.maemo.org, that's the main development site.

If you think you can buy a PSP or iPhone for $40 shipped, good luck. I've never even seen a broken one go that cheap.