Had a hard drive in my PS2 for quite some time now, saved me a fortune in money cause I can just download games now and don't have pay £30 a pop.
The basics are that you need the older fatter PS2 not the newer slimline model, there is an external hard drive available for the slimlines but it's not that good.
You next need to get a network adaptor, these can be like rocking horse shit to find as Sony stopped making them well over a year ago, soon after they realised that people could copy hard games onto the drive.
You then need a suitable hard drive, by suitable I mean Maxtor or Seagate as they have the correct spacing between the IDE and molex power connector else you'll have to mod the network adaptor. I use a Western Digital 160gb drive which wouldn't fit but after a bit of hacksawing and filing managed to get the drive to fit but you can avoid this hassle by getting the correct drive, I had the 160gb drive lying around so for me it made sense to use it.
The drive fits on the inside of the network adaptor and then the whole thing slides into the spare slot in the back of the PS2.
You then need some software like HD Loader or HD Advance, this allows you to boot the PS2 off the CD/DVD they supply and it presents a menu with the contents of the hard drive ie the games that have been loaded.
You can then use HD Loader/Advance to copy games onto the hard drive but the software only allows you to load original games so get the games from your friends or rent them from BlockBuster.
Now to the interesting, if you disconnect the hard drive from the PS2 and connect it to your PC using a standard IDE connector you can run a piece of software called WinHiip, using WinHiip you can copy any game to the hard drive, this is how I copy downloaded games ISOs onto the hard drive, put the hard drive back in the PS2 and bingo the games available to play.
Some games won't work from the hard drive, most seem to so before downloading a game do some research to see if you're wasting your time.
I purchased my network adaptor and hd advance from the web, I think at the time they were around £15 a pop.
Hope that answers all questions, post back if I've missed anything.