1. Right now, the only downside of having a firmware above 1.10 is that you can't open your PS3, possibly mess it up and play PS2 backups. So, updating it to 1.32 was fine.
2. Sony's site doesn't say that you can run PS2 backups from the HDD. What it says is that games that require being installed to the HDD (like Final Fantasy XI) can now be played on the PS3. You still need a legal version of the game.
3. Technically speaking, everything has exploits. It doesn't matter that the PS3 and the PSP look the same. The same exploits on the PSP can't be used on the PS3, and vice versa. The PS3 has a much different type of security than the PSP.
4. Yes, if PARADOX has an ISO loader that will run from the hard drive, that means we more than likely won't have to open our consoles and install modchips. The ISO loader, as far as we know, is a softmod (software based modification) and not a hardmod (hardware based modification).
5. Writing a PS3 emulator will not happen for decades. In theory, the hardware you run an emulator on needs to be approximately 10x faster than the hardware you wish to emulate. Meaning that, as of right now, we can't emulate a PS3. And, Linux on the PS3 is restricted in that there is no hardware acceleration, meaning a lot of games, emulators, etc. won't run like they would on a PC because access to the graphics adapter is very limited.