MiracleOfSound said:
Unfortunately due to the shitty game design in Dead Rising, the only way to effectively beat it is to keep starting over and levelling up. It's really lame.
this is true for Dead Rising 1 however dead rising 2 fixed this problem (mostly) my first playthrough I leveled up to 4 or 5 until I screwed up and had to restart, on my second playthrough I easily beat the game including the majority of the psycho's.
my best advice would be to stock up on PP as quickly as you can, the game can be quite frustrating when you first start out, but when you upgrade your inventory you'll be able to carry more health items.
you also don't need to waste money on the zombrex or whatever the shot for your daughter is called, often the game will hint that you can find a shot of zombrex if you complete certain objectives (DO THEM!)
some other tips: the sledgehammer + the axe is one of the most powerful weapons in the game, and all the parts you need for it can be found right after leaving the safehouse. rescue a lot of survivors early on, they give a huge PP bonus and they are nowhere near as dumb as the survivors in dead rising 1 were.