Hi,
WAS v7.0 has been shipped for almost two years and is up to 7.0.0.11.
There are multiple aspects to migration:
Applications: In reality there are few APIs in WAS v3.5 so there isn't as much that can go wrong. Basically start over with RAD or some other IDE and reuse your current code as snippets to import manually.
Infastructure: You can do the multiple steps of migrating from v3.5 to v5.1 and then to v7.0 but I wouldn't recommend it. There are enough differences between v3.5 and v7.0 that you're better off just starting with a fresh v7.0 image and moving forward.
The best migration link is here: www-01.ibm.com/support/docview.wss?rs=18... Take a look at the section on v4.0 impacts to understand what changes you may have to deal with.
I know this sounds like a big jump but we had a major Japanese auto manufacturer successfully do this more than a year ago