The Shrine

Not overly surprising, considering the Wii is essentially a beefed-up GC (and hence will be able to play all GC games):

http://ps3.ign.com/articles/711/711242p1.html

But it should ease any concerns over whether or not there will be some incompatible games

Well, wouldn't it have to be since the processor stuff is completely different from the PS2? It was the same deal with the PS2.

The 360 achieves backwards compatibility (though I hear it's far from perfect) using emulation software running on the new hardware whereas this will be the old hardware itself. That's the difference.

From a hardware point of view, adding the PS2 chipset to every PS3 will add cost whereas I assume that emulation is cheaper.

I like the idea of having the actual PS2 hardware in their because then you know it will work with all previous-gen games but they're apparently removing it in the future in favor of emulation.

I am just wondering how this so called promised visual updates for existing PS2 software (during E3 2005) is going to work now.

I'd bet that we won't be seeing any improved visual updates if it was something promised last year.