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.
294w ago - UltimatePS3 posted on his French Web site linked above another video of loading PS2 back-ups on the PS3. This has been done numerous times already with many similar methods, but those interested can check out his video below.
Feel free to share comments on this method if you like guys!