The UMD region in the recovery, last I checked in 3.71 M33-4 +1.50 kernal, only effects which icons show up in the XMB. It will not let you use other regions UMD videos.
Please note, the only things I did not test were ripping a UMD video of a different region and the various options with a video ISO. All testing was done using a UMD from Japan on a US PSP, one that wasn't released in the US and was imported.