Only games created with version 1.5 (or higher) of the PSP SDK will not work on the 1.0 firmware. Considering how long it normally takes to create a game (absolute minimum 6 months, normally a year or so), there will be a fair amount of games that will work, but it's likely all new games will fail to work.
Extracting the 1.0 firmware and allowing people to downgrade will not solve the problem. There are at least two reasons why:
- All software released contains the version number that the firmware must be equal to, or higher, before the game will even attempt to be run by the PSP. This will need to be patched in either the dumped images (or the firmware) to fool the PSP into thinking the firmware version is adequate.
- There are lots of additions in the 1.5 firmware, so if any game uses functions only present in the 1.5 firmware, then they are not going to work on 1.0 regardless of how much you try.
The only way I can see around this, is to get the firmware, patch it to remove the signing requirement, and then release this as an upgrade. However, how do you run the firmware upgrade? Upgrades, the same as games and apps, need signing before the PSP will run them, and the only holes currently available are on the 1.0 firmware, so only people with that firmware will be able to use the "hacked" firmwares. Since the 1.0 firmware was the original, Sony never released it as an upgrade, so you would need to rip it, create a downgrader tool for it, sign the downgrader tool, and then distribute it. If you can do that, you may as well just hack the latest version, and be compatible with more games.
Of course, there's been very little as of yet in the hardware hacking - it may be possible to create a modchip of sorts, or to reflash the device through other means.