It had been rumored for awhile that the PS2's Emotion Engine and Graphics Synthesizer chips were going to be used in the PS3. It looks like this is indeed the case. Sony had been wanting to go the emulator route but there is one small problem- some games did not use "the library" recommended by Sony and would not work on an emulator.

Eventually these chips will be removed from the manufacture of the system to reduce costs and they will then go to an emulator. Makes one wonder if there will be any differences in how compatible each version is.