There have been at least four versions of the PS3 that had a subset of features (other than hard drive space) that would cause consumers to differentiate between them:
1.) Original - had essentially a PS2 inside of it (emotion engine chip, etc) for full hardware compatibility of PS2 games. 4 USB ports.
2.) Update - had software emulation for PS2 games. 4 USB ports.
3.) Update 2 - no capability to play PS2 games (can still play PS1 games), 2 USB ports, no media card reader.
4.) Slim - no capability for PS2 games, 2 USB ports, bigger hard drives and smaller footprint.
I have a (3), and I really miss playing PS2 games. But I just can't abide controller cords strewn across the living room anymore.
The reason they removed it was to force people to move on to the next platform. For the first few years of the PS3's cycle, they were still selling more PS2's. I understand, and I'm ok with that, but I think that they've accomplished their goal now.
I really, really, really wish they'd release a software package in the PSN store that you could buy in order to be able to play PS2 games. Hell, I'd pay $50 for it.