What makes the PS2 so difficult to emulate is the fill rate of the graphics chip. while the system on a whole wasn't that great it had an enormous fill rate which IIRC is what developers are leveraging with the recent crop of pretty damn good looking PS2 games (God of War, Shadow of Colossus, Tekken 5, etc.)
As for seeing an emulator... Most (if not ALL) console emulators are simply PC emulators that have been ported to the console... re-complied, tweaked and played with to work on the console.
To that end, the BEST any console emulator could ever hope to be is "as good as" the PC version, typically they lag behind by at least a release with about 85% of the capabilities.
So you probably wont ever see a 360 emulating a PS2 (or Saturn, or 3DO, or ... ) until you see it being done on a PC first.
there ARE emulators out there for both the PS2 and the Saturn, though they don't work all that great, they're still very much in their infancy.
This post has been edited by twistedsymphony: Jun 28 2006, 06:07 PM