Both. You said that all PS1 games will be playable on a PAL PS3, yet only 1000 PS2 titles, and their emulation will be 99% in a few months.

That's because the PS3 NTSC already uses software emulation for PS1 games, it has nothing to do with the PS2 hardware. Therefore the software emulation for PS1 games on the PAL PS3 will already be fully compatible just like how NTSC systems are. Then that just leaves the PS2 which in the PAL PS3 will use software emulation instead of PS2's hardware built in, like the NTSC system had. Therefore it will take a bit of time to get the PS2 emulation up to snuff.