Yes you can soft-mod PS2. I think it works best with a Phat PS2 rather than a Slim one (as you can install a big FO hard drive and install all your games) but you can load anything you can fit on a USB Key.
You need :
- PS2 memory card
- Retail Action Replay Max CD (or Codebreaker v8 or above)
- An original PSone game disc
- USB Key (Flash Drive)
- Several files and programs (IDGet, Titleman Frontend, or Free McBoot)
- PS2 network adapter
- 3.5" PATA (IDE) hard drive
I'm not going to write a full tutorial here. There are 10's of tutorials all over the net, just googling some of the info above will get you what you need. When you're finished you can run any ELF file you like (emulators etc.) and you can install PSOne and PS2 games to the hard drive and use applications such as HDLoader/OpenPS2Loader.