Hey Crashwg I had some qeustions for you.What exactly do you need to install a new HD on your PS2 ? Any store bought HD works.All my ps2 games are legal anyway but I am annoyed with swaping the games.I did get my hand on something called "HD loader ps2" so I am assmuming I need that. Also does installing any modchip effect online play like they ban you from PS2 online service ? Also the "PS2 online pack" comes with the 40GB HD or you have by the HD seperate ? I dont have a chip yet and I dont play ps2 online but just curious... 
Thanks 
Wow, about five million questions all rolled into one...

What is needed to install a harddrive:
The official sony network adaptor and a PS2
What drives work:
The most recomended brand as of today would be maxtor, they are a perfect fit and the PS2 has no problems with them that I know of. You can do a search on google or whatever for "HDLOADER compatibility" and you'll find more info on what HDs work and which don't.
In order to use the HD for backing up your games and playing them without using the original disks you will need to purchase the HDloader program or HDadvance which is basically the same thing.
Also, if you get your playstation modchipped (DMS3 is the only one I KNOW works) you can download a free (hacked) version of the HDloader program and transfer it to a memory card.
The above (memory card thingy) is what I'm doing. I'd recommend it to anyone because it is awesome.
Explination:
The original program (HDloader) must be in the drive when you boot the PS2. You will be brought to a screen with all the installed games and this is where you choose what you want to play. Now if you just go ahead and play the game, the HDloader disk will spin THE WHOLE DAMN TIME that you play that game. To stop it from spinning you may either choose "install" and then cancel it before you start the game or you can eject the disk after the game starts. Who the heck wants to have to remember to do that all the time... Not me, that's for sure!
Fortunatly someone was nice enough to hack the program so that you can transfer it to a memory card and load it from there. In order to take advantage of this you will need a modchip that can boot from the memory card though as the PS2 doesn't natively support this feature. The way you start the program is just by holding triangle when you start the PS2, simple as that!
In case you were wondering the program only takes up something like 300kb of 8mb which isn't too bad.
Oh, and you don't need to try and convince me that you won't be putting illegal copies of games on the HD either... I know you will, everyone does. Heck for $7 I can buy a $50 game so why not! However, there are some difficulties copying copies to the HD.
I have successfully copied a copy of a 256MB game to the HD by inserting it while the HDloader program was booting (off the memory card of course) but when I tried a 3gig game it said it was an invalid game or something like that, and it was an original... That was with the free memory card HDloader though and the one that I bought worked fine. Thanks, again is due to some great programers out there that are willing to share their work for free as someone has come up with a program that allows you to install the PS2's HD into a windows based PC and install not only copies of games but even images (nero, clonecd, alcohol, more...)
Oh yea, about interupting online play... I realy don't know. I can only say that I have successfully played ATV offroad fury 2, from the HD, online.
I hope that was enough information to convince you to go out and get this together as it is definitly worth the $$$!