I dont think so ^^
I have 2 2GB Counterfeit Memmorysticks
and both of them run my backups just fine.
MagicGate is just for DRM protected Audio/Video files (AAC protected)
The best guess i can give is this:
Please try to reflash the CFW Probably something went wrong the last time.
If that does not work... maybe you broke something when you had the PSP disassambled?
Maybe there is some dust at the cable connections causing the stuck pixels and problems with the Mainboard
Best luck to you!