As alchymyth said. You only need go to dashboard -> settings -> reading -> set “Front page displays” to latest post and last set “Blog pages show at most” = 3. Then you change display format as you want (if you choose “latest post” WP will find home.php firs, if there is no home.php, WP will find index.php).
If you still want to use this code, you should remember 1 things: “reset your query after this code finish” using this function: wp_reset_query().
I think, maybe you didn’t use this function after set query_posts(‘showposts=3’).
