The Emotion Chip was a pricey bit of hardware popped into the 1st gen PS3's. This drove costs though the roof, but offered superb PS2 playback.

The EC was removed to price drop the system, so Sony offered PS2 playback though software emulation. They were using code to power playback though PS3 hardware.

At the time, 2006, Sony was trying to bridge PS2 players over to the new console. That's why PS2 playback was such a big issue ... from a marketing standpoint.

Now in 2008, Sony said "screw it". The PS2 is 2 years dead and software emulation was buggy. Why spend resources maintaining a dead technology?