"Zombie Elvis Found!" is an in-game joke, and possibly an Easter Egg in Grand Theft Auto III and Grand Theft Auto: Vice City.
Basically, "Zombie Elvis Found!" is a headline on newspapers that are found on the streets throughout Liberty City and Vice City. The newspaper depicts the headline, along with a black and white photograph of Elvis' face.
This is an in-game joke towards the hysteria that revolved around the alleged "sightings" of Elvis during the 70's and 80's after his death. He is never seen walking around the streets of Liberty City and/or Vice City.