Does gtx 260 support pixel shader 2.0

Yes. SM 2.0 is a subset of DX9. Your card essentially supports all DX versions 10 and below, but the question of such a program running in a modern OS is another matter entirely. Of course some older commands technically have a software translation rather than direct hardware support, but hey you don't want to devote precious die area when you don't have to, usually......

 

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