- This weekend Gizmodo (linked above) has tested out the PS3's external video storage from the not-so-recent PS3 Firmware 2.70
update, and they have confirmed it works as intended.
To quote: You can back up your purchased videos to any external USB drive, be it a flash drive or a standard USB hard drive. The video will show up on in a backup folder inside the drive, but you can't stream directly from the drive.
So it's not like you can connect a 1TB USB hard drive and dump all your movies onto there for on-the-fly watching. You're limited to whatever space you have on your PS3's drive for storage, but you can swap in/swap-out from the external drive with relative ease.
So yeah, nice job Sony for putting out this video backup. It's great for the person who downloads a lot of movies from Sony's PSN service, which has a surprisingly decent selection for a service that's not that old.