Yeah, in the recent months one if the devs discussed that. They said they'd worked on it for atleast least 4 months. The hardware wasn't a problem. The only reason they stopped is cause sega had backed out of the business.Crazy Taxi has a piss poor draw distance (much lower than GTA3's) and flat environments so hardly a case to prove GTA3 is possible on DC from a streaming point of view, if anything it proves the opposite.
The draw distance in Crazy Taxi is so bad and the environments wouldn't look out of place on PSOne, games colorful looks flatter it to be honest.
From what I've read in DC forums, the devs have claimed they had the game in first person running on DC, but wanted 3rd person which it didn't have the memory for.