"Do the institutions know what PTSC is worth, or are they precluded from investing in penny stocks - or both?"
Probably the latter; maybe the former; maybe both. I don't think it was deliberate on your part but I interpreted your post as suggesting that there is no institutional ownership of PTSC at all. Well, not quite true, although there ain't that much, probably because of the second reason you cited - PTSC is an OTC stock.
Here's the current list, as far as I know. No change in the small holdings of the first two; the third is a recent new buy, the fourth is a complete sell of the small number of shares they held. Corrections welcome.
Grimes And Company Inc 28,000 (2 Feb 2010)
Scott And Selber Inc 10,000 (26 Jan 2010)
United Capital Financial Advisers Inc 61,476 (New Holding - 13 Nov 2009)
Corestates Capital Advisors Llc Sold All -8,000 (12 Nov 2009)