I have an original launch PS3, it has full backwards compatibility with PS2 titles due to PS2 hardware actually being in the box. My 35 or so PS2 games all work. My model is the CECHAxx which does have the hardware, as does the CECHBxx. These two models had the Emotion Engine and Graphics Synthesizer in them. The CECHCxx and CECHExx models have limited backwards compatibility using the software and a small amount of PS2 hardware.
AMDSempron145, I've noticed you are in Australia. The CECHAxx and CECHBxx models were only released in Japan and North America, therefore you, along with the other PAL territories, started out with limited backwards compatibility.
By the way, here
is an interesting page with pictures of the various PS3 motherboards and some of their specs. If you take a look at the picture for the CECHAxx model, you can see the EE+GS chip on the left side of the board. Here's
the image I'm referring to. Here's
an image of the CECHExx, notice the differences in the area where the EE+GS would've been.