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I have a quick question about the emulator:

Does the emulator run only .iso images of game discs, or if I pop a PS2 game into my dvd drive on my computer, will it read it off of the disc and play that as well?

Thanks

Both,there are different CDVD plugins for each job

Yes, but not recommended.

Why not? Are there issues now a days with playing it from the actual DVD? Other than the occasional delay in read times, which I think has been fixed, what happens?

I don't actually think there's a problem with the cdvd drivers that would cause damage to the cdrom but, i could be wrong.