m cdat default, so make sure to change this option to-m dvdfor PSP games. You can also use-m auto, to determine the format based on filesize with a 750 MB threshold. But be careful, in my own testings DVD format on PS2 games did not work to play with PCSX2 core in RetroArch...
Formats with an extension like .gz for PS2 and .CHD (originally MAME) but adopted by other emulators as well. E.g. RetroArch. I have 1500+ games. 800+ are in .bin/.cue format, the other half is all in .iso format. And i repeat: Hard Drive space is not a problem for me!