I tried that first, but kept getting the 80010006 error, so I decided to split it.
I got multiman 2.00.04 (I know it's not the latest, but the most stable I tried in awhile) and got the bdemu2 pkg for 3.41. I switched the bd-rom emulator to hermes per instructions and fired the game (this time with the split files instead of the extracted ones) and got the same message at launch: 80010006 error.
I can attest that extracting the .psarc file does not make the game work.
No matter what, you have to copy the split files to internal if you want to play.
The only way that I could play ICO was to remove the split files from the game (of course I can't play Shadow), so multiman wouldn't ask me to copy the files and allow me to launch the game...