If the environment has just one or 2 servers then i would suggest a reinstall of the OS to 5.1 directly.
You need to make sure that the VMs from the local storage are migrated and the external storage such as FC or iSCSI is disconnected or disbaled from BIOS to make sure that the data is not exposed during a reinstall.
The other method is an upgrade form 3.5 to 4.x and then to 5.x.
You might face issues during the upgrade as well.
Would suggest a reinstall of the OS if possible.
Let me know which route you would like to take and also provide a update on the number of server and VMs in the environment.
Cheers,
Nitin