We once discussed this. The consensus was that it was theoretically possible on PC, but would be a horrific undertaking. The idea was that we could use scripted sounds to carry voices. You're not getting that to happen on PSOne, though.
Also, the ISO won't work with the PSP. It's just a Playstation emulator that expects CD ROM images. You can't just 'add' data to an iso past the 700Mb limit. There's structural and navigational data; the ISO needs to meet the, uh, ISO 9660 standard for sector data, track divisions, and a whole lot of other stuff.
Splitting the discs? I have no idea if this would be easy or not. Someone else here will have to tell you how the disc swap is initiated. I would assume in a field file, but I honestly don't know.