Many people assumed that the PS3 was software emulating PS2 games, ever since the release of the 80GB model. That system removed the Emotion Engine from the hardware, and required Sony to implement a backwards compatibility solution that involved emulation. Many, including Joystiq, wondered why the new 40GB model couldn't do the same.
SCEE's Nick Sharples sent a technical explanation as to why the new 40GB model loses support for PS2 games. "Backwards compatibility for PS2 titles is largely made possible through the use of actual semiconductors, supported by the PS3 system software. The 20GB and 60GB PS3 models launched in Japan and the USA were equipped with both the PS2 Emotion Engine and Graphics Synthesiser chips and we could therefore guarantee over 90% backwards compatibility for PS2 titles.
"The 60GB model launched in Europe was a new model (shared with the 80GB model launched subsequently in USA) which contains only a modified version of the Graphics Synthesiser chip from the PS2 and not the Emotion Engine chip. The European launch model therefore used a combination of software and the modified version of the PS2 Graphics Synthesiser chip to deliver backwards compatibility for PS2 titles. As a result the percentage of backwards compatible PS2 titles was slightly reduced.
"The 40GB model, to be launched in Europe on 10th October, is a new model and is not equipped with any of the semi conductors from the PS2, and backwards compatibility would therefore have to be achieved by software emulation alone." Because each game would have to be individually emulated (much like on the Xbox 360), Sony decided that an effort like that would be much too costly, and opted to remove BC support from the 40GB system entirely. That decision has not only produced a cheaper system for Sony to manufacture, but for consumers to buy as well.