I realize a lot of ppl have issues with Custom BGMs on this game but this method I've made pretty much all of mine work. Here's my steps. If it's confusing I'm sorry. The instructions on the Wiki are simpler than mine. I just know that some ppl still have problems despite writing the instructions down.
1. On your PSP Memory Stick go into the x:/PSP/MUSIC. In that folder create a new folder called "OVERWORLD".
2. Place the songs you want to be played in the X:\MUSIC\OVERWORLD\ (X = PSP)
3. Load up the SD Gundam Generation Overworld Game. In the menu navigate to the gallery section (Its right under the option where you'll see a percentage of your MS collection completion.
4. In that menu select the BGM option. (You'll see the letters BGM).
5. You'll bring up categories of characters they are separated by various series. Select the series that character is in. (Game Original Characters in in the "Games" Folder, Characters unlocked via MS Completion Gallery are located in "Secret" Folder and Created Characters are in the "My Characters" folder).
6. Select the character who's theme you wish to change. Square Button plays the current BGM for that character. Triangle removes any custom BGM that character has. Circle brings up a list of Songs you have placed in your OVERWORLD folder (the ones in PSP:\MUSIC\OVERWORLD\).
7. Select the song you wish to be played from now on by pressing the Circle button. There you go. When that character attacks you'll hear that theme instead of the default.
Note 1: This also overwrites the Critical theme if that character had one.
Ex. Changing Athrun's theme and he hits Super High Tension his theme will still be the same song as before.
Note 2: If you change the theme of a character on a Warship. Only the Warship Captain's theme will be used.
I've read various forums and other complaints about custom music not playing. Usually amounting to 1 or 2 problems. If your problem is:
A. The Custom BGM option is not selectable. I don't know how to help you there. Apparently its caused by the ISO you're using or the Custom Firmware version you're using.
B. An error message appears when trying to select the theme.
Here's what I do to solve this. You need Audacity(with the MP3 codec) or whatever other program to edit music. But I'm basing this off using Audacity so here's a guide.
2. Ok now that the song loaded. There's a few things wrong with it. 1 being that song volume maybe too low. So you'll hardly hear it during gameplay. Let's Fix that first.
2. Continued = To fix this lets to the "Effect" menu. Select Amplify...
3. You'll get this window. Move the slider a bit to the left or right. Not too much or your song will destroy your ears (really sound like a bunch of crap) or it'll be too quiet to play. Check "Allow Clipping" and press OK.
5. Now with those 2 out the way. Lets export the file into an MP3. So Select "Export".
6. Now you want to clear the tags. The reason is to avoid the problem of your Custom BGM playing slowly or not at all. (don't worry I copied the file to my PSP so I still have the original song). Select "Clear" then click "OK"
7. Yes to Overwriting the file cause this is going straight to my PSP.
8. You're files should be fixed. If not I'll research more into but so far I've not had any problems. Happy Playing.