I *REALLY* don't want this in tech releated, but I'll make a pass on it, as I'm compelled to offer my 2 cents in this discussion.
1) I own a PSP and have the toolchain to make homebrew applications. Far from me to be an "expert" I can tell you a thing or two about the PSP.
The PSP actually has an MMU, putting it a leg up over the original PSX. What's even more intresting is they are actually using the protection rings to keep unauthorized code from running on the system. (At least, they are trying to. See below)
The problem with Sony is they make great hardware, but have probably the worst application developers on the planet. I swear to god, when I got the example code from my PS2 dev kit, I nearly went cross-eyed looking at that garbarge. Sony seems to have thier hardware engeneers actually develop code for whatever they are making as opposed to creating a spec for other, (Much more qualified) programmers to adhere too.
It's really messy.
Anyway, back to the PSP.
The kernel runs in ring 0, and is protected. If you are able to deposit code into memory and somehow get it to execute, you will have no access to any kenrel functions and pretty much limits your program to 64k with simple instructions. Things like hardware registers, memory allocation, and other goodies are pretty much blocked.
Now, the 2.0 to 1.5 degrader did a neat hack where it overwrote the version number checked by the updater. The updater, knowing no better, gladly downloads and runs the 1.5 update. When the downgrade happens, there is a lot of invalid "garbage" in the flash ram (2.0 extended data) that requires a reflash of the data area (Scary!) but it does it.
The 1.5 bios and below doesn't actively check if the code being executed is signed by Sony. The 1.51 bios and above does
The GTA hack buffer-overruns signed code. That was Rockstar's bad.
Anyway, let's return to FF7 shall we?
The PSP and the PSX are not compatible. The PSX runs in a non-memory managed environment with calls to hardware functions via non-protected syscalls to the BIOS. The PS2 can handle the backward compatibilty because 1) The I/O Processor of the PS2 is an R3000A, which converts itself into a true PS1 CPU after a PS1 disk is authenticated. 2) The PS2 bios can still catch the syscalls and translate them into ps2 hardware calls. 3) The GPU can run without the EE in a PSX compatibity mode and accept PSX hardware calls. 4) The PS2, even though having an MMU, can run in a non-protected mode.
To get a PSX program to run in the PSP, it will requre the bios to accept non-protected syscalls. That's not going to happen as it sets up a security risk to compromise the system. Also, there is no secondary CPU to run the native PSX code like there is in the PS2.
The PS2 is compatible because there's a PS1 built in it. The PSP has no such animal.
Now, will the PSP be able to run a PSX emulater in the future? Maybe. however it will be nowhere near the proformance of the native hardware of the PS2.
An emulator is just a dream right now, if they get one working, then we can examine how to put FF7 on the go. Hoever, I'm sure people more familiar with the emulator itself will be working on it. FF7 is somewhat of a "killer app" to have emulated.
So upshot, if an emulater comes out, I'm sure FF7 will be one of the most demanded applications anyway and we are pretty powerless to do anything to help or hinder the progress.
Now, if you wish to discuss emulation on the PSP in the future, I would suggest the General forum. It's better suited for that kind of discussion.
I'm keeping this thread open on the chance an intelligent technical discussion han happen here on the subject. I'll see how it goes.