Forget it. The hardware just isn't there anymore and no amount of hacking will magically generate the required performance for a pure software emulation.

Also an interesting note is that there is possibly a PSP version of the open source hack coming soon. It would enable your PSP to be used in the same way the Jailbreak USB is used. You would just need a PSP, USB cable and a MS Pro Duo.

Maybe it could help PSP sales?

Keep thinking that. SONY patented PS2 software emulation for a reason. The patent says it would be done with the Cell.

http://www.destructoid.com/sony-patents-ps2-emulation-software-for-ps3--138022.phtml

This hack exploded onto the scene so fast and from nowhere. It is pretty crazy.

Like I said there is PS2 emulator inside of PS3 FW but it's slow and crappy. The problem in emulating PS2 with PS3 isn't EE it's EDRAM inside of GS. It's pretty hard to emulate something that has higher bandwidth than any memory that PS3 has.

Well we have to wait and see how it performs. Just a month ago people thought the PS3 was an unhackable anti-piracy fortress. Today the PS3 has been blown open wider than the 360.

If they add ps2 compatibility it would likely be hit or miss. Lots of games wouldn't run or would have awful framerates. Remember, PS2 capable PS3s have actual PS2 components inside them (EE and GS or just GS). I doubt that a pure software solution would run games as well as that. IIRC Sony has explained in the past why a pure software solution is very hard for ps2 emulation.

While MKV support is cool, I personally have my fingers crossed for a PSP emulator. 

I am personally hoping for PS1 emulation that offers graphical enhancements like seen with ePSXe, or NES, SNES, etc... emulators with HD upscaling.

Are they sure they dont mean you are now able to play ps2/x ISOs on PS2 compatible models?

If that is the case I am sure they would have mentioned that the feature us limited to PS2 enabled models.