What if Paraguay won the Paraguayan War?

Paraguay against Brazil and Argentina together can't win; simple as that - you have one country willing to send as many troops as they could to topple López(Brazil), and another providing (much)less troops, but a secure logistic chain(Argentina). López only chance was to win over the caudillos from the Argentinian provinces of Entre-Ríos and Corrientes to negate the advantages Argentina brought in - and it seems that López thought he would get them on his side, but the biggest of them(Urquiza) chose to join the Argentinian government and Brazil(Paraguayan troops looting everything they could get their hands on on their way to Uruguay didn't help things, although there still was a lot of anti-Brazilian sentiment going round).

As for Paraguay not becoming just another third-world country, not with López on power, not with the way he ran things. López only has this image of a forward-thinking leader nobly fighting against two giants because it was convenient for a lot of people in the succeeding decades to remember him like that; think him as a 19th-century Saddam Hussein, and you will be closer to what he really was.