First of all, thanks for all the wishes so far.
Here is my point of view on the legal issue:
There are a handful of PSP-Emulators already and some even play commercial games, yet Sony didn't do anything at all. There were PS2 emulators around on the PC which is a comparable platform when the PS2 was still selling like hot-cakes - and it still does.
Like I said before, the difference with the Pandora is that it can be seen as more directly competing with Sony's hardware. There is a big difference between a $1,000 stationary computer or even a laptop, with a million different configurations each offered from different companies and a $99 PS2, and the Pandora, a single, ~$350 unit built and developed by a single identifiable company and the relatively similarly priced PSP.
Also, it should be noted that the environment has been changing relatively recently thanks to Piracy. Just take a look at Nintendo five years ago and Nintendo today in terms of actions against hardware that allows piracy. While many forward-thinking companies are evolving with this post-piracy environment, many Japanese companies are lashing out and panicking by trying to solve the problem the old-fashioned way--legal action.
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All of those PSP-Emulators can be used on portable devices like Notebooks and Netbooks which are becoming more and more similar to the PSP - Sony doesn't care.
Key word here is becoming, as in, we haven't reached that point yet where they are similar, and where they can play PSP games. Also, see above point about ease of targeting.
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And aslong this project isn't out there shouldn't be anything to worry about.