PS2 Upgrades:
PC200 SDRAM, Some imbedded microprocessor, 20-83 GB hard drive, and the ability to use an external ZIP drive through USB as a memory card.
All it needs is an operating system, and you could use a USB mouse and keyboard, and probably use the Firewire port to connect your ipod and listen to your Mp3s.
I heard about all this in the Japanese version of Playstation.com. Some things like the microprocessor are rumored. Though that would be cool.
I cant think of anything else it would need except some video RAM.