Yes, apparently, Ps3 craps up some PS2 games in graphics. That's when you have new technology emulating old technology :
Originally Posted by danman227460 from PS3forums
what do you expect? The games on the PS2 are not suppose to play at higher resolutions than 480p/i. So if you play games in 720p/1080i/1080p, it woud look crappy. It was the same way as PS1 games on the PS2. The machine is newer and the newer technology diminshes the quality of older games. Once Sony gets upscaling, the games might look better. At least you have BC which is better than no BC. The system is cheap and you can get a nice slm model for about 150 and if you get one used, its even cheaper. Besides whats the point of a PS3 if you are only gonna play old games? You get a new console to play the new games. Personally, I would have kept the PS2. It still has uses.
Sony better fix it soon through one of their firmware upgrades.