PlayStation Now is Sony’s effort to deliver legacy gaming – especially PlayStation 3 titles – on the PlayStation 4 using Gaikai’s content-streaming infrastructure, but a newly surfaced rumor suggests that content from earlier consoles will be treated differently. PSone and PlayStation 2 titles will reportedly rely on local emulation instead, with improvements to the software side that will allow for native HD resolutions (compared to the PlayStation 3’s upscaling). All of this comes from “a well-placed source working with Sony’s streaming service” who spoke to Digital Foundry.
The PlayStation 3 launched with hardware-based backwards compatibility, but that changed with the first re-worked version of the console. The PS3’s firmware is coded with emulators for PS One, PS2, and PlayStation Portable games, however, and the Vita supports PSone emulation. It’s not clear what the PS4 firmware is equipped with, but it’s a more powerful machine than its predecessor by a wide margin and there’s plenty of precedent for emulator support.
Bear in mind that all of this is nothing more than a rumor for the time being, but so far the only games Sony has only confirmed for the PlayStation Now service are PS3 games. PlayStation Now recently began to send out invitations to join a private beta test for the PlayStation Now service, which is tentatively set for a summer 2014 release.