iPod Touch 3rd Generation, Distorted grey Screen

Since you already changed the LCD I would think that is is an issue related to the video processor. Of course, check all your cable connections and connectors, make sure they are seated well and make sure that your logic board, cables, and connectors do not have any debris or corrosion on them. If all that checks out and you have done a reset and restore also make sure you have the newest firmware, and if you still have problems, I think it might be time to look for a logic board replacement. Good Luck and let us know.