2x post :/
I know what's happening, I installed yesterday and it says to remove txd.img and txd.dir from your GTA III models folder, then the game will create you a new one, suitable for the mod.
I know what's happening. I installed it yesterday and if you read the readme it says:
"DELETE TXD.IMG AND TXD.DIR FROM YOUR GTA 3 MODELS FOLDER, IF YOU DON'T DO THAT THE COLORS WILL MESS UP.