I've seen many people do this. They install it into the dashboard. Also I believe there's kits out there for slots to install the PS2 or XBOX. But I think PS2 is easier to install because it's CD tray opens outwards, not upwards. The XBOX can't be very easily installed (at least not into a dashboard) because it needs room above for it's tray to open....
I got most of the following information from my buddy (he already tried to do this). I don't know where he knows this stuff from but here it is:
First off you need a 12-volt power inverter (steps up 12 volts to 120volts ac current). You will need this to plug your Playstation into Power. Make sure you give it lots of room to breathe. If it overheates not only will it kill you PS2 but it will also cause dangerous electricity problems. Buy a screen and run the yellow video output into your screen. If you have a stereo that has an input set of RCA jacks on the back you can feed the sound straight into the radio. If not you will need to buy an FM modulator. This plugs into your radio anttenna and feeds the sound into the radio (to hear the PlayStation-2 you will tune the radio to a set channel). This works really well and is fairly easy to install. There will also be 12-volt wires for the FM modulator but those should'nt be a problem. If you feel you have little room in your dash you may need to strip the PS2 of it's case (take the MoBo out) and that is a whole-nother story. You really have to know how to do that to actually try it. I wouldn't recommend you mess with your PS2 without complete prior knowledge as to how you will strip it. If you do that then you can make it smaller so that with a little bit of extra-case-work of your own you can install it into your dash without having to have a huge PS2 case in your Dash! That's about all I can tell you for now. Ask me any other questions you have (or if you don't understand any of the stuff I wrote).
Good Luck man.
- izzy out.