It' s definately emulation! Just like 360 has to emulate Xbox games, Revolution will have to emulate non-Revolution games through the Virtual Console.
It' s emulation because it' s emulating a different graphics chip to the native one in the console. NES, SNES and N64 all use different hardware (obviously) to render the games and so Revolution has to emulate that hardware.
Microsoft' s difficulties are down to the NVIDIA GPU in Xbox and the custom built ATi card in 360. 360 has to straight up emulate the NVIDIA chip and Microsoft have to pay NVIDIA to do so.
Sony, up until PS3 have made all their own hardware, so they simply have to incorporate the same technology into PS3 (otherwise they' d have to emulate it).
Nintendo could easily stick the same hardware (the actual stiuff on a smaller scale) in Revolution (N64 being the most technical to reduce in size, but DS is superior hardware so it wouldn' t be very big anyway) and avoid having to emulate it. But since it' s so easy to use software to emulate NES, SNES and N64 games, it' s easier and more cost effective to emulate them.
Oh, and before anybody starts to contradict me, the definition of software emulation is...
A software emulator allows computer programs to run on a platform (computer architecture and/or operating system) other than the one for which they were originally written.
It' s not exclusive though , so XBL Arcade could get some too.
Very true and already being done.
Personally i want SNK stuff on Live Arcade, and i REALLY want the Dreamcast rumour to be true!