Any ideas on where to start to look? All of the connections are plugged in correctly.
In my (admitedly limited) experience, gun problems are often really monitor problems.
Don't know anything about PB3, but the following apply generally go optical gun games:
-clean the monitor face, clean the mirror (if there is one), clean the bezel/glass, clean the plastic lens in the front of the gun (take the gun apart and clean both sides if you can)
-make sure the monitor is well adjusted; purity, convergence, brightness/contract (usually brighter is better for the guns, but not so bright you get any "bleeding"). Make sure white is WHITE; not visably tinted a color.
-check/adjust your game power supply (+5V)
-try testing in a darkened area; reflections and other surrounding lights may be messing with the sensors.
-look for any diagnostic mode adjustments (i.e. "flash brightness", etc.)