Running firmware 199A does indeed allow 3.5 to boot and appear to be working.
I have however another problem. If I install 2-3 VMs on the local VMFS it works fine. Any subsequent VMs seem to get disk corruption.
I would run chkdsk on a VM and it would find errors, it will then repair and if I run chkdsk again it will again find errors, the errors are also not the same.
I have tried creating new VMs, restore exising VMs, nothing seem to work part around 2-3 VMs.
3.0.2 works just fine, Even VMs that seem to have corruption work if I leave the VMFS volume intact when downgrading from 3.5 to 3.0.2.
Rolling back to 3.0.2 again.