Rebug is best IMHO, I run it on my DECHA so can't exactly say if its the best for a retail system but hey.
To update just run the installer like any other update from USB.
Now as for PS1/PS2 yes you can run them on a non BC system, PS1 is the same on any PS3 since its a software emulator but PS2 is a little tricky.
I won't be of much help here since my PS3 has full PS2 hardware BC so everything works fine but for your slim I think you need some kind of launcher or a converter or something.
PS2 does work tho just not 100%
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