I shoot with an LX-5 but I think the two cameras are fairly similar in how you'd set them up for street photography. I tend to use manual focus with a hyperfocus setting so that I get the greatest range of DOF possible because, as others have noted, these cameras have a TON of DOF. I tend to put it in step zoom and leave it at about the 35mm equivalent, put it in manual focus, find an aperture that will allow for a decent shutter speed for the circumstances, and set the hyperfocal. With the LX cams in manual focus mode, you'll note that as you adjust the focus, you'll see a bar along the bottom of the screen that indicates your range of focus. Just adjust the focus until the right edge of that bar just barely touches the infinity point on the right and you're set for hyperfocal shooting. For me, in decent light, this usually ends up being something like f4 or f5, which gives you focus on everything from about 3-4 feet out to infinity. Then I don't worry about focussing and just aim and shoot. I often don't even bring the camera up to my eye, having gotten reasonably good at instinctively framing shots from chest level. And you don't have to worry about perfect framing because its not like the AF point in the center is gonna grab something in the distance and screw up the focus on the foreground - the beauty of hyperfocal. If I decide to zoom out to 28 or 24mm, I know the focal range is only gonna get bigger so I don't bother to adjust it, and then when I come back to 35mm, its still set perfectly. And the LX5 has a feature (not sure if the LX3 shares this or not) that will make the camera remember the manual focus and zoom settings when you turn the camera back on, so you can set it up and turn it on and off as you would and know its gonna be right each time you turn it on.
I've heard the LX5 is a bit quicker and more responsive than the LX3, but I've seen some great street photography done with the LX3 and manual focus will probably make it as quick as it can get. So that's my recommendation, fwiw.
-Ray