Winamp 3 was a complete rewrite from the ground up, built around the new skinning engine and the "Wasabi" scripting language. But as you say, it wasn't very performant, and it was also super buggy.

I believe there was some drama which resulted in the lead dev for 3 getting fired, and then the skinning engine (which was the most popular part of 3) was grafted onto the 2.x base for version "5".