well ... it depends on the setup. Here is the complete guide:
http://www.vmware.com/pdf/vi3_35/esx_3/r35u2/vi3_35_25_u2_upgrade_guide.pdf
since you have 2.5 on VC 1.x ... you can't use converter to target it ... you'd have to update to ESX 2.5.3 + VC 2.0.x for converter to have anything to do with it.
Other options exist, please check the guide.
you could technically SCP the files from one to another. then make a new vm and attach the vmdks to the new vm.
also, if you could present the VMFS2 datastore to the ESXi 3.5 host, you could just use the file browser and copy paste ... etc ... but i don't know if ESXi can do all of the above ...
so long story short ... read the document
Regards,
EvilOne
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