Yes, all 1.5 homebrew works (there might be one or two exceptions, but non i've encounted) and all the offical functions of 3.03
Aside from built in ISO support, the ISOs launch directly from the "MemeryStick" Screen.
There is also the PS1 emulator, with unoffical game support, so you can use games you've ripped and converted as well as those released by sony.
I havn't had a chance to upgrade from 3.02OE yet, but will asap. The Custom firmware is well worth installing.