AAW, i gotta explain this for..uh...5.600th time?
lol, joke, the IMG tool's got a lil bug, the Replace thing doesnt work, for some reason, anyways, do everything Shifty said, the gta3.img file is in (by default): C:\Program Files\Rockstar Games\GTAIII\Models.
Thats if your computer is in English, now, if it is on spanish, it should be: C:\Archivos de Programa\Rockstar Games\GTAIII\Models, if it is on Chines it is...hey, dont abuse my knowledge, anyways, if ya did everything correctly, it should be no problem, the other thing, meaby the mod is too big for your computer kinda, or meaby its not "well formated"...