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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1 - put a self-copied cd into your ps3
2 - once the ps3 detects the cd, immediately turn off your tv
3 - disconnect the tv input from your ps3, poke it into your ps2
4 - turn on your tv
5 - edit the videos to show the tv screen and your ps3
Yeah. No I'm jocking... about the OTHEROS it was more dangerous for $ony because it allow you to dump and manipulate decrypted Memory NAND while Hypervisor (LV1), (GameOS LV2), that is difficoult for people to understand, but always a way for hack FULLY the PS3 and so a dangerous BIG HOLE for $ony PS3 security.
About this modchip concept.. I don't think that they will fix this.