The very first modified firmware for retail PlayStation 3 consoles has been released, allowing any PS3 owner to install their own programs onto the XMB.
Open source developer Youness Alaoumi (hacker alias: KaKaRoToKS) released the first proof of concept last night. The release takes the form of a script that adapts the existing Sony releases of official firmware (3.41 and 3.55 definitely work), modifies them, and then re-packs them ready for installation on any PS3.
Alaoumi himself doesn't call this a custom firmware, more a "modified" one. It is a simple adjustment to an .xml file within the firmware updater that adds an "Install PKG" option to the XMB options - PKGs are the containers used by Sony for patches and PSN downloads. PSJailbreak added the same option but there are a number of differences: firstly, the new firmware mod doesn't allow for the installation of unsigned, unencrypted code in the way that the Jailbreak did.
Secondly, the hooks and patches added to the PS3's GameOS, which re-routed hard drive traffic through the Blu-ray channels, have also not been included. This means that the existing tools for piracy - and indeed "backup" software - do not work. Adding support for these to a modified firmware is not trivial - proper reverse-engineering is required here, as opposed to adjusting the base .xml, and none of the established hackers will support such a release.
The notion of extracting, adjusting and re-packing official firmwares isn't new - it's thought that PSJailbreak did something similar with its downgrader, while Geohot demonstrated his own custom firmware a while back that retained OtherOS support - however, this was never released, leading some to believe it was a fake.
There has been a range of homebrew titles released for the PS3 in the wake of PSJailbreak. DOOM, Heretic and Hexen have been ported across and a number of emulators have been released. In addition, a few genuine, original hand-written games have also surfaced. These will not work on the new firmware without being signed and encrypted using the keys unearthed by Fail0verflow's work, but it is just a matter of time before this happens.