Currently, N900 has 5 settings.

1 - Darkest
2 - Dimmer than 3
3 - Dimmer than 4
4 - Noticeably dimmer than 5
5 - Brightest

I was wondering if anyone tried to find out if you can have any extra output levels?
(eg. Hacked Sony PSP could have extra brighter brightness level than what it could in stock firmware)

Brighter / Dimmer and in-betweens. Any extra levels would be great.
I can only assume N900's LCD backlight can get brighter and/or dimmer if we can control its power level.

Yes, it should be possible, but I'm not sure which OS component controls it. There was a package available for Maemo 4 which added extra brightness levels (not any higher, but more in between). I'll see if I can find it, as it might be of use as a reference. However, given the drastic UI change between Maemo 4 and Maemo 5, I don't know if it will perform similarly.
UPDATE: I can't seem to find it right now, but in Maemo 4, anyway, I think it was just a script that would add some entries to GConf for the extra levels. If it's still the same, you could do it by hand.

I asked that before
http://talk.maemo.org/showthread.php?t=36001

No solution so far

Any updates to this? I would love a darker setting and possibly even a brighter setting.
Is there some file that we can edit to change its backlight strength?

I agree that the difference between level 5 and 4 is very significant, but once you give it a try...I was personally surprised how bright 4 gets thanks to the build in photo sensor (auto dim feature). Frankly, at times my Nok have got surprisingly bright. Thought you may not know this. True, it appears dim at first but once the phone processes the settings, and begins to adjust to the ambient light it`s a whole different story...brighter than my girlfriend's Blackberry . The reward...all day on battery with moderate usage with nav and data positioning checked