I have a PSP and Street Fighter Alpha 3 Max (which I also recommend you pick up if you are going for the fighting game experience on the system). The D-Pad is no where near as bad as the uncoordinated masses make out. It does, however, feel a little different and takes getting used to. It's a learning curve, just like everything else really.
I've only had the game a week or so and I can pretty much rip it up consistently with most characters. Diagonals are tougher, however it is just a matter of experimenting and finding what motion works best with you. Once you're over that, it's all natural.