I liked Grandia 2 better. The story is cookie-cutter stuff, but the battle system is really cool. Also, Soulcalibur, Project Justice, Marvel vs. Capcom 2, Street Fighter III, and a ton of other fighters.
Best character is Paul, though I've got Mokujin, Baek, and Wang up to Tekken Lord/Deity/whatever level as well. My favorite "combo" is Baek's 10-hit with just kicks, but if you want something that actually combos, I quite enjoy Wang's down-away 4,2, juggling them with down-away 2,4,2, or King's linked throws if I want to be a **** about it.
Maybe the Ratchet and Clank games? The subtitles are about as risque as they get, and the action is more suitable for 8-year-olds than Modern Warfare 2. You could probably pick up a Rock Band bundle on the cheap these days. Batman: Arkham Asylum is fantastic as well. The Lego Harry Potter, Lego Indiana Jones, and Lego Star Wars games are swell. It's tough to go wrong with a sports games. Little Big Planet is also pretty cool, and if your kid wraps his head around the creation tools, it's a pretty great creativity tool to boot. Basically there are a ton of better options for kids on the violence spectrum. You may be more strict about sex, drug references, or language, so read up on whatever it is you decide to try out. Good luck!
Anyone remember Mad Catz' controllers with vented handles and fans inside of them? Those things were awesome. Sorry, I'm no help on the PSP front though. I'm sure there are gloves made out of some wicking material that would help though.