correct... 40gig ps3 can not play ps2 games. it depends on if you think that's a big thing or not... i never got a ps2, so getting a ps3 with backwards compatibility got me opened up to the ps2's HUGE game library. i've heard/read from others that BC is not that big of a deal, because either they're interested in ps3 games, or they already have a ps2 and do not mind going back and forth between systems.
how ps2 games play... as far as my experience goes, i've had no problems whatsoever with the ps2 games that i've played (~20-30 played and/or rented). there was an update to the ps3 a couple months ago that upscaled graphics of ps2 games as well. some people liked it, others didn't really notice, but overall, i don't remember hearing anything negative though.
hope that helps!