Japan's Ultra One technology magazine is reporting that the early PS3 consoles will include PS2 hardware to enable backwards compatibility
The magazine reports that, contrary to earlier reports about software emulation, the PlayStation 3 will use a hardware solution in order to run PlayStation 2 games. It's believed that the PlayStation 3 hardware in its current form not only features the new PS3 technology, but also the core components from the PlayStation 2 (Emotion Engine and Graphic Synthesizer).