You have to be running a custom firmware instead of an official Sony one in order to run emulators and other homebrew programs on the PSP.

The good news is that because your PSP has firmware version 2.0 you can upgrade your PSP to a custom firmware version. I don't have time to run through the process now, but I can add a step by step guide to installing custom firmware on your PSP when I get back home later tonight if you would like me to.