Out of curiosity, what is the point of the dithering filter the PS2 is applying to the image in this example ? Better view here: Also, is that done by hardware or software ?
Dithering filter can be changed on PC I believe - so I imagine it is at the software level - just like it is on PC.
I'd expect it to be done by hardware, as a software implementation would be painfully slow (reading VRAM contents definitely is). The GS docs read as follows: (from: GS User's Manual 6th Ed, p.70)
If the frame buffer has 5 bits per component (reduces size by 33% or 50%), dithering will look better than just dropping the 3 LSB.
In 640x480, especially since most PS2s are hooked up to TVs with composite video, you can't even see the dithering. Great, cheap way to use less video memory. Otherwise you get noticeable posterization and other artifcacts.