Back in the day I also played TM3 via link cable and it was fun 2vs2(well there is no team play actually). Back then I didn't have multitap.
Now I have both and decided to make some tests on real hardware and post the results.
Surprise number 1: You can actuall play 4vs4 with two consoles and two mulltitaps!!! I don't know if any other PS1 game does this.
Surprise number 2: 1vs1 on two consoles/screens is FANTASTIC! The framerate is like 40(no jokes). Definitely the best 1vs1 car combat option for PS1.

2vs2 also works very good. The framerate is nice and the game is very playable.

So since I have only one multitap I tried 2vs3. The one console with the two players is fine. The one with the three however not so. The framerate is choppy(but still somewhat playable) and there is an annoying controller pause if the server is the console with the multitap. Like someone presses the start button. As I said the framerate with the three character splits is a little choppy which is strange because if you use the mutitap only(no link cable) the three split screens have better framerate.
Do not ever add AIs when using split screens, it lags as hell!

I will make further tests tomorrow.

This is awesome, keep posting about it. I think Rogue Trip has multiplayer via link cable too. I would  be interested if you could test that too.

In Rogue Trip you can play either 1v1 on separate consoles, 2vs2 and 1vs2. No team deathmatch as an option for all car combat games for PS1. For team battles you have not to attack your buddy.
Keep in mind that you can't play against AI cars in Rogue Trip link mode. In Twisted Metal 3 you can.
Twisted Metal 3 link cable matches tested:
- 1on1 : the best way to play multiplayer. Ultra stable 30fps.
- 1on2 : still good, slightly lower fps for the split-screen users
- 2on2 : still playable, even on Blimp
- 2on3 : well here the fps go down but yet on some maps it's doable. Do not play Blimp in that mode! Lags a lot.
- 3on3 : Lags. Maybe you should find some fun but...
- 3on4 and 4on4 : Laaag!

The Blimp level seems to lag the most when more than 4 cars on the stage.