At this point you should move the Playstation 2 ISO's of your choice to your external HDD/flash drive.Remove your FLASH DRIVE, press the button and quit the game and go back to XMB and launch swap magic.Go inside BADATA-SYSTEM folder and cut/move the Pictures and SWAPMAGIC folder to ROOT the Virtual Memory Card.Copy the BADATA-SYSTEM folder and USBLD_01.ELF file to your Virtual Memory Card (on PS3).If you are unable to view your flash drive, then it is not compatible (use another one).
( Props to Crono for telling us how to use v3.8 Swapmagic). Go to configure, select any button you want ( I usually use X or O), go to MISC and select FILEBROWSER binding it to the selected button, go down and hit ok.
People that are using Swapmagic v3.8 go to the SMBOOT menu and select uLaunch from there.
Download the USBAdvance Tutorial File Pack.If you are a Japenesee PS3 user you need to rename the folder BADATA-SYSTEM to BIDATA-SYSTEM -This guide will assume you are a USA user and call the folder "BADATA-SYSTEM" in the download pack. Flash Drive (PSP in USB MODE will also work).Launch PS3 (20/60gb) - NTSC/Japanese (Must have emotion engine, only launch PS3's had this).Swap Magic 3.6+/3.8(Purchase here or here) (Must be actual copy, burned copies do NOT work).