LU currently doesn't run with Steam. You have to replace the executable with one from a CD copy of the game. (Piracy isn't supported or allowed here, so please be careful with your replies).
Steam uses a custom executable that doesn't work the same way as the original CD versions do, which is why you can't downgrade it.
Actually it does work with this method, we've tested it last month to see if it still works and it does
!
You just need to follow this guide and you'll be able to play LU on Steam, it will record your hours on GTA3 without any problems