We've gotten a few reports about this and just about everyone has the same reaction. "Woah! Cool!" Without a doubt there will be a sequel to Grand Theft Auto 3. That's not the question really. The question is what type of game it will be, a continuation with a bunch of tweaks, or a push the envelope with all kinds of crazy new stuff. It's starting to sound like the latter, here's a quote from a recent EGM: (Thanks Protoman)

...Grand Theft Auto fans won't go long without another fix of wanton violence and pillaging. GTA3 Xbox is a given (with online play?), but we'll also soon hear the details on GTA4. Rockstar's stayin' silent on the subject, but I could name a few hundred thousand fans ready to part with $50 a piece for it. The current talk indicates that DMA will take the GTA3 framework and turn it into a massively multiplayer online game for the four installment, where you're free to create your own mobs and anyone in the city could be a "real" person. Word is it'll also be set in a real U.S. city this time.