I have all three PAL games: GTA:SA (Classic) and the GTA: III/VC double pack. I don't think anything I know will help but here it is anyway
I was aware that PAL GTA:SA only played at 480i and doesn't support widescreen. But I wasn't aware of the GTAIII/VC problem because originally I played them both on an unmodded PAL machine via RGB SCART. The games displayed no fault whether widescreen or 4:3 was selected via the PAL MS dash. Of course this also means 480i too.
I tried GTAIII/VC earlier today and now know that also applies when using the same console, now softmodded, region changed to NTSC again via RGB SCART.
But put either in a Component cable connected machine and select 480p widescreen and, you're right, the screen display is all messed up and in a very odd way.
Even odder, when you deselect widescreen via the dash the two games play perfectly in 480p 4:3. Obviously the prog scan makes them look better than GTA:SA.
Many Xbox games don't support WS but I've never come across ones where just selecting WS actually affected the progressive scan display. BTW I've not checked to see what happens when you deselect the Xbox WS option from the dash but manually select widescreen on the TV.
There is an outside possibility that this is a specific Xbox model version issue ie. v.1.6.
What version is the machine you're using? Again I didn't have time to check it myself in this case but just this week I've posted here about Panzer Dragoon Orta and Gun Valkeryie, two PAL games which won't play on v.1.6 Xboxes at 480p. With all other Xboxes, apparently those which use a different video encoder, there's no problem. On the v.1.6 you can only play them if you deselect 480p and use 480i.
If it is this or connected in some way I don't think you will get these problems sorted. Somebody here may be able to offer more help on GTA: SA but I doubt very much that the NTSC versions of GTAIII/VC supported WS either so you're stuck with 4:3 480p anyway.