Sony would have to release stuff like FF7 in UMDs. It's just too darn big.
Imagine yourself downloading a 1.5GB game and THEN transferring to your Memory Stick (which, BTW, must be at least 2GB).
There ways to compress CD images (CSO, DAX, ZNX) but even then most games don't compress more than 15-30% so FF7 would still be around 1.5G
On the other hand, there are some really small games like the Ridge Racer series, the Tekken series and so.
One thing they can do and probably will though, is convert the audio CD tracks in some games to AT3 and play those instead--that can be easily done in an emulator and would save much space on some games that had (in MB) little content but much CD music.
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