...we are, indeed, working on a PSX2 title. We have the development  machines in hand (three in fact) but keep in mind that this project is in the  wee, early stages. 90% or more of the company's efforts are going into finishing  Soldier of Fortune and Voyager: Elite Force. The PSX2 project is in its infancy  and really only a three or four man team at this point.
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update: Since I posted this story a debate about PSX2 image quality has come up, Well here are a few images that Namco released recently of a couple of their PSX2 titles, see for yourself: [shot1] [shot2] [shot3] [shot4] [shot5]. Yes, these are 'in-engine' shots.