We were very lucky that we had symbols for global things, which inludes function names and signatures but not return types. We then replaced the first instruction of a function with a jump to our own. global variables can be done with a reference to a raw address. virtual methods are a bit of a challenge but we found way to handle them.
Can the assets be "reverse engineered" as well?
Also, can R* shut this project down? Is there a legal basis for them?
Of course, R*/Take-Two could always make a case.
That would be copyright infringement. At that point, you might as well just hit copy files from the original game.
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)