SkatterTech did a nice job summing up this PSP hack of playing multiplayer with only one copy of the game. Check out the video and the list of step-by-step instructions is below.
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Although the video is slow enough you got the point, here’s a step-by-step breakdown of the process:
1) Startup both PSPs and place the game into PSP #1.
2) Start an Ad Hoc game, create a server, and choose your settings.
3) Set time limit to unlimited (recommended), only because it takes a while to load the game in to PSPs since we only have 1 copy of the game.
4) Choose your car, but don’t start the game.
5) Remove the UMD & say no to quitting game.
6) Start the game in PSP #2 and go to multiplayer.
7) Enter the Ad Hoc mode and enter the server created by PSP #1.
8) Choose your car, but don’t start the game.
9) Remove the UMD & say not 2 exit game.
10) Place it back into PSP #1 and enter game
11) Once loaded take it out & and say no 2 quitting.
12) Put it back into PSP #2 and enter the game.
13) You should now be able to play eachother.
Source: SkatterTech via YouTube