This is to dispel some confusion among potential consumers mind. Although the 40 gig PS3 isnt backwards compatible with ps2 games (AT THE MOMENT) it can fully emulate all PS1 games.
However look forward to firmwire updates which would make software emulation of PS2 games possible on PS3.
This is what BIZ DAILY is reporting :-
"GameDaily BIZ also contacted SCEE spokesman Nick Sharples who told us, "We have made clear on many occasions that our priority is on developing innovative new features and services for PS3 and not on backwards compatibility. The 40GB model no longer contains any elements of the PS2 chip set which powered backwards compatibility in previous models, and is therefore only compatible with PS one titles."