THe project is codenamed the HYPERDRIVE.

Features:
Connect any 3.5" SATA Hard Drive to the PS3
Developing ability to connect IDE hard drive
Supports upto 750GB (maybe more, that's all that was tested)
Switch between external HYPERDRIVE and internal 2.5" HDD
HYPERDRIVE USB2.0 Support to dump data to/from HDD

When you connect the system announces the drive requires formatting etc and then promptly begins to prep it. All system settings are unchanged so they are stored internally to the PS3 and not on the HDD.

http://www.team-xecuter.com/forums/show … hp?t=43957

They also say that loading games to, and playing from the HDD looks like a possibility.