I got a good look at it. It seems fine to me. It's quite comparable to the PS2 version, so if you're coming from the PC or Xbox versions of the previous games, you'll be a little disappointed in the graphics. You do have to remember that the PS2 version's performance never reached the framerates of the more powerful bretheren, so if that's the only version you saw, you'll actually see it works just as well. In some ways, it betters the original GTA3 by having the light effects, car gloss, and colored lighting that never was introduced to the series, until the PS2 got Vice City. Controls are decent considering the PSP, in the first place. You're just not going to get very good controls on this console, period, unless you stick to old school stuff that can rely on face buttons and the D-pad alone. It's workable, though, and with a little adjustment, surprisingly not very far off from the original control method. That is being that we are missing a few buttons, and an analogue stick, that the big consoles have and use. Just try not to compare it to the Xbox version, where they did a bang up job on the conversion, with improved framerates, graphics, and one of the best vehicle camera controls the series ever had(which didn't come across as well when they made San Andreas).
The color bleed is also on purpose. This mimiks the PS2 version which had the trails. Only on the other ports did you have the option to turn it off and display crisp and clear graphics. This was done to hide imperfections on the PS2 version, and thus this one too.