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Have you tried this fix yet?
GTA 3 WINDOWS XP FIX
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If you're running Windows XP & an nVIDIA based graphics card (and possibly some other brands) with GTA3:PC and experiencing problems, then don't worry! There's some important information in the 'readme' file of the CD. Here's the important snippet.
"We have found a possible problem with Windows XP that manifests itself as graphical problems both in the game menu and also during game play. We have traced this problem to be a Windows XP problem. Technically this problem is solved by the use of a newer version of d3d8.dll than is shipped on CD with Windows XP. (The version on the Windows XP CD that has problems is 5.1.26000.0 ? versions tested without error include 5.1.2600.15 and 5.1.2600.29)
Currently the only way we know to update this dll file is to install the Windows XP Patch: "The Computer Cannot Enter Standby or Hibernate if a Direct3D-Based Screen Saver Is Running (Q306676)" downloadable from here.
This update may in the future be available as part of an official Windows XP Service Pack, a Windows XP Compatibility Update, or possibly a DirectX 8.1 update."
IF U HAVE ANY TROUBLES WITH THE GAME RUNNING WITH WINDOWS XP get this patch below to fix it
[link]http://download.microsoft.com/download/whistler/Patch/Q306676/WXP/EN-US/Q306676_WXP_SP1_x86_ENU.exe[/link]
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