[kmeisthax]

Assets are typically "reverse engineered" by writing tools that convert them to and from whatever proprietary formats the game uses. Other than that, there's not much else to do with them once they're in standard format.

As for the legality of the whole project: there's several different legal objections one could raise under copyright law:

1. That the EULA prohibits reverse-engineering

2. That the resulting reverse-engineering project is infringing the copyright on GTA3's program code (which it kind of has to in order to be a faithful disassembly)