PS3's rumored backcompat solution: a PS2 inside

"Sony guts!"

IGN has a story up citing Ultra One, a Japanese monthly tech magazine whose July issue reports that the PS3 will include the unified Emotion Engine/Graphic Synthesizer combo chip that currently resides in the slim-PS2 model, thus ensuring a high level of backwards compatibility. This is a change from their claim that the PS3 would use software to emulate older games, similar to the solution the Xbox 360 (still) employs. The key points of such a decision:

• It will increase the price of each unit; as the software solution approaches 100% compatibility, they will have the option of removing the hardware to cut costs.
• The PS3 could use a software / hardware combination to have even greater backwards compatibility than the PS2 slim currently enjoys.
• Will the system handle graphical upgrades -- similar to the 360's upsampling of older games -- if they use a hardware solution?
  

The good news is the system will support an incredible number of titles right out of the box; the bad news is this is just another component that may prohibit them from lowering the console's retail price quickly. Sony was awfully mum on the topic at E3, so this could explain why. Without a working emulator for launch, Sony may be presented with the unpalatable prospect of putting PlayStation 2s in their PlayStation 3s.

See also:
PlayStation 3 not 100% backwards compatible?
So will or won't the Sony PlayStation 3 be backwards compatible?

[Thanks, Canadian Geese and David]