Not only is this better than the first Terror Toons (a sufficiently entertaining bad movie itself) but I'd go so far as to say this is better than both the previous films COMBINED! Personally I thought the second film was dreadful so that one doesn't add much to the equation.
This one is a massive improvement on every front. The embodiment of a live-action Looney Tunes episode for grown-ups. Cheap but insane visual FX fly across the screen at a mile a minute. Gore is rampant, some of it prosthetic, some of it CGI. All the characters from the first film are reincarnated, including the beloved Dr. Carnage and Max Assassin. Now we can all pretend like the second film didn't exist.
Half of the movie takes place in a hospital where the Doctor and his simian assistant are wreaking all forms of havoc. The other half takes place inside the "toon realm" (I think?) where special guest Herschell Gordon Lewis reads us a bizarre and slightly homo-erotic mix of Three Little Pigs and Little Red Riding Hood that itself devolves into absolute chaos.
The movie never makes any form of sense, but it's rarely ever boring, and there are already TWO more sequels planned! Consider me excited.