Steam recently changed the default privacy settings for all users. This may impact tracking. Ensure your profile has the correct settings by following the guide on our forums.
PSP should not be even able to detect things in the "ISO" folder if it's running OFW.
It would have to be something in the "GAME" Folders for it to even appear.
Go into your system settings and confirm the Firmware version please.
If it's a CFW it will usually have some sort of denomination like "Such and such Firmware" "X.XX, or Version-x"
I think with a 1000 you can downgrade any firmware with a pandora battery. I'm not sure though as I've never used a Pandora battery, and my last 1000 just broke about 3 months ago so I can't test it out for you all I have now is a 3000.