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You can upgrade the hard drive to a bigger one just as long as it's the
same physical size as the original one. The 40GB PS3 is technically
capable of backwards compatibility. It's just that Sony's OS doesn't
support it on that model (maybe, there will be a firmware update that
will allow it in the future). If you install Linux on the PS3 (which
Sony officially allows you to do), then you can install the PS1
emulator (it's called ePSXe) and the PS2 emulator (it's called PCSX2).
Both of them are free to download for Linux. The only thing that won't
make the 40GB model the same as the 80GB is the finish of the console,
lack of built-in memory card reader, lack of built-in WiFi, and only 2
USB ports. But those aren't neccesary.
Though the ps3 80g is backwards compatible,it does not play back all ps2 games. go to sony's website,i believe they have a list of games that are,and are not compatible.also make sure your ps3 has all the latest software updates.if you have it hooked to the internet im sure it does
Besides the obvious size difference of being able to store more information on it, the difference is that the 80gb console is backwards compatibility out of the box with 70% of the ps2 games and with the proper updates the 80gb console can be 98% compatible with ps2 games. The 40gb console isn't compatible with any ps2 games. Hope this helps.