We're about to fire up the oldand download the latest 1.70 , but here's what we know about it so far: The update lets you play original PS1 games that you download for your PSP on your PS3. Plus, whatever saved games you accrue when doing so can get transferred over to your PSP later. Not sure if you can transfer them back to your PS3.
Also, PS1 and PS2 games that have vibration controls can now be supported with whatever vibration accessories are available for the PS3. This is all Mike from Kotaku sees so far, but if you know something we've missed let us know in the comments.
PS3 1.70 Firmware Out [Kotaku - Thanks Michael and Ahmed!]