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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Well, I know in the past (the first year it was out) many users and Devs tried all kinds of "experiments" with movie discs on the PS3... from what I recall, the conclusion to them all was that movie and game discs use a different mode and authenticate differently on the PS3.