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Obviously, when you play a PS1 game on the PS2, the graphics aren't going to be much better, even if you have the smooth thingy on. In fact, I've never noticed any difference with the smoothing on. Any way, the graphics are going to be much worse as they are not PS2 games.
Having said that, the graphics should NOT be any worse then if you play it on a PS1. If you can get hold of a PS1, then try it out, and compare them. It should be the same, or better than the PS1. If not you have a problem.
I'm not quite sure what you mean, but the PS2 doesn't perform miracles.
any help?
If you mean the PS1 settings such as smoothing and disk speed, you have to set that up every time. It won't save.