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Ha! That is interesting. I guess I must have missed that story. Good to know. I wonder why they have to put the scaling option in the SDK though... I thought scaler chips typically act by themselves and are independent of developer controls.
As far as emulation goes, there are hardware emulation (Emotion engine chipset) and software emulation (EU PS3s), emulation simply means the duplication of functionalities of one system on another, and it can be achieved by both a hardware and software approach. So not all emulation means software.
I think the PS1 and PS2 games will be played in software emulation mode on EU PS3s, but if there is indeed a hardware scaler, then the scaling should be done through the hardware. The JP and NA PS3s have the emotion engine chipset built in, so unless Sony is planning to retire the Emotion Engine hardware in these PS3s, then I guess we will be getting hardware emulated PS1 and PS2 games with hardware scaling! Woo-hoo!
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PS3 120 GB w/ Kubuntu. Xbox 360 Premium. Wii. PSP
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