I received my Saleae logic analyzer and can now see clearly what is happening on the I2C bus.

PS3 controller: Compensating for errors

Trace below is when the PS3 USB hub has been paired with a PS3 controller

This snapshot represents the last 7 bytes I read from the PS3 USB hub controller. This is not random noise data but a repeat of the first 7. These 7 values should be either 0 or 1.

Below is data grabbed when I power on the Arduino and USB hub controller but did not pair the PS3 controller yet.

All these values should be either 0 or 1, not "@" (64)