SCEA has confirmed to GamesIndustry.biz that PSP firmware update 3.5 removes the software restriction capping the CPU speed at 266 MHz.
Although the PSP is capable of a clock speed of 333 MHz, it was previously locked at 266 MHz, or about 80% of its processing power, in a presumed attempt to lengthen battery life.
After the most recent PSP firmware update, developers are now able to code for the full processor speed. This update will not retroactively affect any previously released titles, but will only apply to those titles currently in development. Games taking advantage of the additional clock speed should be able to run at a higher frame rate, but at the cost of draining the battery more quickly.
There was no official word from SCEA whether or not unlocking the CPU's power is a first step towards the rumored re-design of Sony's portable.