Not small as in young. Small as in body type, to where they look the proper age, but also are just tiny. Hard to explain.
Step 2 involves hair color, skin tone, and personality.
Loli is a body type not a age group
so whats step 3? Profit?
THE BEST METHOD to run PSX games (and everything else for that matter) is via Retroarch - http://buildbot.libretro.com/nightly/
If you have any questions on how to set it up on Windows please feel free to ask, its very easy.