If you're going to get your PSP to CFW, the BEST program EVAR to downgrade any PSP (IMO) is Hellcats Tool, aka "pan3xx rev4". It does anything you could possibly want to do (even installs DDC4 WITHOUT a computer! Straight from the program on the PSP) and it's very easy to use.
About the ISO thing, all you have to do is put the .iso file in the root of your memory card. There's gonna be a folder called ISO. Just stick it in there, and enjoy!
(It's gonna look like this
X:\ISO\Yourgamehere.iso
Where X is the root of your memory card.)
As for all those files, just get WinRAR if you don't have it already, and then just click the first one that has the little icon with the 3 different colored things (books or whatever they are...) Yes, it's fine to click the first one. If you just click the first one and extract what's in it, it will extract it from every single other one. (Because the file is split in pieces. WinRAR will put 'em all back together for you)