Thanks for your reply.
I changed it to this as you said:
<!-- By default, the server will block the use of locally customized gta3.img player skins
This setting can be used to allow such mods. Not recommended for competitive servers.
Values: none, peds ; default value: none -->
<allow_gta3_img_mods>peds</allow_gta3_img_mods>
but still, it is showing the default ID 230 skin when I have replaced it with a custom one in it's txd in gta3.img.
I forgot to mention I am testing in map editor.
Nvm it works, thanks!