2 gigs, because the game takes up a little over 1, and they don't make them in 1-and-a-half.
Firmware is the internal software of the PSP, the stuff that allows it run all that it runs. The official ones have the access to the memory card for loading games blocked off. Therefore, you will need one of the fancy custom firmwares -- the only problem is that the PSP's firmware cracking is not as stable as with other portable consoles, so it has a nice 2% chance of killing your PSP for all eternity. Scared yet?