How do i update my PSP?

You can just connect to the software update server on your PSP. If you don't have a compatible wireless connection at home, make one with the Internet Connection Sharing service on Windows XP, find a wireless hotspot like McDonalds or the library or something or just buy a wireless router.

You can also download the file from Sony's website, as far as I know, and then transfer it to your PSP via a USB cable or a memory card reader. Then you just run it on your PSP.

I'm running 1.5 at the moment; I downgraded from 3.11 (I think) using Lumines.

You can find out more information on Internet Connection Sharing here: https://www.annoyances.org/exec/show/ics I'm not sure if it'll work with PSP but it's worth a try.
 
Are you talking about just normal updating, or Custom Firmware?

You can check this place. It's a very helpful guide for CF.
 
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