Maybe I'm to much of a skeptic, but it seems possible he could be talking about sales of PS2 games via PSN and not real BC as we know it to be, that is taking PS2 game discs and using them.

Interesting view, Fishy ... I am so glad I found a 20gb - I didn't care about wifi and a card reader - I wanted full BC ... and after they axed it, I wanted to buy a PS3 on my terms - and I did ... 

A full PS2 software emulator for the PS3 is guaranteed, why wouldn't Sony do it? They already have a pretty good investment on a PS2 emulator (minus graphics synthesizer) that runs on the European 80Gb PS3 so why not add the graphics synthesizer? That would be pretty stupid from Sony so I'm pretty sure they didn't stop working on it.

Actually I think the fully software PS2 emulator was planned since the European release but probably they hit some major delays/technical issues and had to release the 40Gb without PS2 emulation. I believe they will a full PS2 emulator this year, maybe they will even announce it at GDC :)

Wouldn't that imply that the game is still being emulated via the ps3's hardware? Off a disc or downloaded, the ps3 still has to be able to play it, unless they decide to start porting every game.

The problem I see with them allowing downloads of complete PS2 games through the PSN is ... hackers will target that so fast. Same thing happened with the PSP. They made an emulator for PS1 and BAM, PS1 games loaded from a memory stick. I don't think they want to go that route.

If they charge for each game, they can recoup the cost of the custom code necessary to get each title working. My understanding is that the difficulty in current GS emulation is that you have to write specific code for each title. A generic emulation may not even be possible. 

 thats what i was thinking when i first read it, but doesnt that mean that we'll have to pay for the games again to play them on our PS3s?

There are already hacks for the PS2 for those that like to steal stuff. I don't see it being any bigger an issue than what already exists. In fact there could be even more roadblocks to theft than the already existing PS2 versions. 

This would be good for everyone if Sony does do this.

 Full PS2 backwards compatability might not be very possible sadly. They only have so much to work with, and some systems are just too different to emulate each other. There is no good Saturn emulator out there for example. I hope it comes, but I am skeptical.