This was a helpful bit of info from vmware support
1. If the server containing the VM, which in turn hosts the VC is ESX 3.5, then, a temporary single host license file, containing sufficient number of CPU's for the server that we are trying to license has to be created. Then this server has to be licensed as single host. This will allow you to power on the VM's on that server, and inturn the VC.
2. If the server containing the VM, which in turn hosts the VC is ESX 4.0, then, a serial number, containing sufficient number of CPU's for the server that we are trying to license has to be used. Then this server has to be licensed as single host. This will allow you to power on the VM's on that server, and in turn the VC.
3. Now, once the VC is up, and since you have ESX 3.5 and ESX 4.0 hosts, you would have to create a license file containing a license for VC and sufficient CPU's (contributed by all ESX 3.5 hosts put together), upload this license file to the license server, and then perform a Start, Stop and Re-read of the license file. You would also have to map the License Server to the VC 4.0. In addition you would have to use the serial numbers for licensing your ESX 4.0 hosts.