Many believe that functional managers always make bad project managers (even if they're good managers). Although I agree that the roles have to be separate, and functional managers may be bad project managers, I believe that it is not an axiom.
In my previous job, I remember an outstanding IT manager, who also acted as a project manager. I have to say that the secret of his success was his great delegation skills. In retrospect, I remember he used to delegate nearly everything and he used to always delegate to the right people. People working under him were always motivated, they loved him, and they were always doing their best.
So, my answer is, yes functional managers CAN be good project managers, provided they're efficient at delegation.
As for your situation, I suspect the IT manager is not only a bad project manager, but also a bad manager in general.