Reports are coming out that the latest PS3 firmware breaks functionality with some third party guitar controllers. Namely the Nyko Wireless Frontman. The system fails to recognize the guitar if it is synced as controller one (red LED). Previously, the guitar would always automatically sync as controller two (blue LED), but will no longer do so. I have this controller and have confirmed this to be a real issue. The official PS3 forums has a lengthy thread on the issues including some complicated workarounds.

One fix, posted by "CashOD" suggests the following solution.

Start your wireless controller as C1.

Start a seond wireless controller as C2.

Enter Rockband.

Sync the Nyko with guitar. (should go to red).

Flip the switch from GH to RB and back To GH.

Allow the guitar to sync automatically (don't press the PS button)

It may take a couple of times to get the contoller on orange.

Sony has reportedly been less than helpful, suggesting that people send in their systems and pay them $149 to fix the issue if they're out of warranty. The Frontman controllers did work prior to the update, as mine did, so this is obviously a firmware issue. It's rather shameful for them to suggest you pay them to fix a software problem they caused.

No official announcement from Sony of Nyko has been made yet.