According to one individual with a highly questionable reputation, this concept project could work because PS1/PS2 discs are authenticated only once on the VSH though liblv2 and the PIC chip would just automate it.
However, if Sony updates liblv2.sprx and more specifically ps1rom.bin so the emulated mechacon is updated it could be patchable.
Finally, to roughly translate from the video's caption:
"This video montage shows the operation of the chip that we are developing to load copies of PS1 and PS2 (if you're retro) in the PS3.
This video shows how to work, without leaving the console open and without switches etc out.
More information on the development of moddchip www.demonhades.org."
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Good to see!!! but anyway with a swap magic we can already do this.. many thanks anyway to demonhades for this effort on this adventure, without him nowdays there wasn't any news on the development of the hacking scene on PS3.
MasterSystem tested first emulator for the ps3 swap modchip
Our great friend and companion Psmaniaco leaves us these photos taken of future testing swappmoddchip emulators that allow, among them the fantastic MasterSystem sega emulator, remember that these tests have been conducted in a console model without feedback and without 40GBs linux because the emulators run in the xmb.
More information for the development of swapp modchip please read this link.