No, SE shouldn't drop PS2 support. All that would achieve is losing their entire PS2 player base.

No, the game isn't going to look any prettier (overnight or over time)
No, you aren't going to see an increase in FPS
No, DX9+ support won't happen
No, the UI won't change

Yes, your game will just be the same game it has been for the last 8 years, minus the PS2 users.

The most that anyone would get out of losing PS2 support is POSSIBLY a little bit more inventory space and the ability to autotranslate your key items and the new weaponskills.

Back on topic:

I've installed FFXI twice on my PS3 (using software backwards compatability) that includes all expansions up until WOTG. Never ran into a problem. I installed them using each individual installation disc, because I bought them as they came out.

Your disc is probably scratched or your PS2 laser is giving out. BOTH of my PS2 have faulty lasers now, even after adjusting the voltage and shiz. Good thing I use hdloader!