*NO* it wouldn't (even sans HDD)... We've got one upstairs (well in the other building I work in that is), and I can certainly tell you that the electronics would not fit in a PSP casing. (nor would it be able to play back the video since it can't decode H.264 or control a UMD drive).
Why not? It's not like SONY doesn't have MPEG4 based players on the market. Heck even mobile phones in Japan have built-in MPEG 4 capability. Of course this is assuming KK's PSP were using a dummy UMD drive that didn't work and was playing the Spiderman 2 trailer from a 1GB Memory Stick. After all, all other kiosks were being fed an external feed anyway. I find it very hard to believe that SONY couldn't fit simple MPEG 4 circuitry into something the size of PSP. Actually that would be a huge insult as SONY prides itself in miniaturization capabilities.
Anyway I'm not saying they weren't actual working PSP hardware only that it's easily possible to demo the units they had on the floor without having to actually have PSP hardware running those demos.