If Sony puts a HDD in the PS3, they will have the same problems Microsoft did with pirating that the Xbox did. You don't need the game disc to play a game on the Xbox if you have played it once. You can save the game to the HDD, and play it from there. In other words, like a rental? Keep it! No late fees cuz you can bring it back to the store on time, and still play the game later. Also, since all consoles are now connected to the internet, you can download the game directly to your HDD, and nexer pay a penny for it. Sony can do all they want from making the discs funky colors (why do you think the old PS1 discs were black?) to coding it into the CPU, someone is going to find a workaround and get free games. Especially with an open source OS like Linux.
The PS2 had a hard drive AND linux, and nobody figured out how to pirate games onto it. They DID figure out how to put a mod chip in and play games off a copied DVD though. The PS3 will not ship with a hard drive but will both have a bay for a 2.5 inch hard drive, and will support external storage through the network. The PS2 discs had no odd colors at all. The PS3 won't either past the fact that they are Bluray discs. Piracy just isn't as widespread of problem as you indicate. It's pretty much limited to a handful of people. The PS3 will take a mod chip that is a heck of a lot more complex than the ones for PS2.
You will also need a tremendous hard drive to store and huge broadband to download PS3 games. I can't imagine keeping several 50 gigabyte games on the hard drive. Can you?
One sidenote about PS2 linux, they had everything as open source except the drivers for the IO chip. These were closed source and they did not include the SDK documentation for that one chip.
Oh, and last I heard, Xbox 360 didn't have a HDD for this very reason.
Last I heard, Xbox360 was coming with one. MS may have changed their mind though. At least all the Xbox360 fanboys have been using this as a reason to bash the PS3. "The Xbox360 comes with one free, and you have to pay extra for the PS3's hd. *point, laugh*"
Edit: added a note about the sheer size of PS3 games.