Interesting news has emerged this morning from SiliconEra, who have produced documents that reveal that Sony is in the process of patenting emulation of the PlayStation2 Emotion Engine chip for Cell-based platforms. That would be PS3 then, and perhaps its successor.
Unfortunately, this tells us very little about Sony's plans with regards software emulation of PS2 software on the the PS3. While the technical diagrams released for the purposes of the patent are interesting, the fact is that any one owning a European launch PS3 already has the Emotion Engine emulated within the bowels of their machine. The problem remains the lack of support for the PS2's other main processor, the Graphics Synthesizer. This was the chip removed from the 40GB SKU, effectively putting the kibosh on backwards compatibility.
This is not to say that full software emulation isn't in the works. There's simply too much money to be made from re-selling the rich and bountiful PS2 back-catalogue via PSN. Getting the emulation work done now would also stand Sony in good stead for whatever console succeeds PS3. Cell was built to be scalable with more PowerPC main cores and additional satellite SPU processors. Any software emulation for the custom PS2 architecture would simply carry over to the new console with minimal modification.
As it is, rumours of the return of PS2 compatibility first cropped up when Sony started to advertise for a emulation-specific engineer, and there have been additional unconfirmed reports of the 40GB version of the PS3 TEST debug unit featuring work-in-progress PS2 backwards compatibility in various revisions of its firmware. There's even a Wobble-o-Vision YouTube video from a nice Spanish man apparently showing a retail 40GB PS3 stuck in factory service mode, yet capable of booting PS2 software. There are several such videos lurking around the internet, but none of them appear to show any actual 3D graphics at work, which would presumably be the core domain of the missing Graphics Synthesizer chip.
Even assuming that Sony does get it working, software emulation will never be perfect, especially bearing in mind PS2's utilisation of ultra-bandwidth eDRAM, missing completely from the PS3 architecture. It may well be that backwards compatibility will return, but only deployed on a per-title basis. Fine for selected PSN downloads, not so good for people wanting to use their old disc-based games on PS3. All of which is speculation of course, and for the time being, the waiting game continues.