The cable is actually an adapter which connects to a USB cable to enable you to plug in the old PS1/PS2 save cartridges. You can then transfer their contents to the PS3 HD. It doesn't allow the reverse of this. ie it's a one way trip.
Yes they were providing Firmware upgrades which contained emulation of a sort to enable game play of older PS2/PS1 games but only the original 60GB Aussie version and the original American versions of the machines can play PS2 games. The newer PS3's can only play PS1 games.
The originally released US PS3 had both a PS2 chip and a graphics chip for PS2 game play.
The AUS original 60GB version had only the graphics chip but was supported by the Firmware upgrades containing files to support PS2 playback.
Sorry mate. Your new PS3 will not play PS2 games unless they actually create and install as part of a Firmware upgrade a full PS2 Emulator.
Hope that helps mate.
Last edited by Ancient_One; 21st August 2009 at 08:41 AM.