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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this video is a demo! is not the final video! is mounted for give to YOU a idea on how use the modchip , project is still not finished, when finished everyone here will have new REAL video and instruction for program and mount the modchip on the bluray of the PS3! please be patient.
this modchip will work only on the PS3 with the PS2 hardware (so 60Gb PAL for example)