According to Gizmodo, the PS3 will receive a firmware update that will enable it to upscale PS2 games to 720p or 1080i resolutions. This follows news that the PS2 chip has been removed for European versions and will also be handled by software.

Maybe Sony think that there console is so powerful that it can handle all this emulation. Let us hope they don't try and do an XBox Live emulator... though this might be their only chance of survival.