This will be rather long, but it may prove helpful to someone else:

 Here are the steps we followed in trying to upgrade:

Steps: 10-19-2006

1. edit the release.config file from 3.3.5 as per the upgrade instructions:
 a. make a backup copy of the current DNN installation web.config file
 b. make a working copy of the new release.config file from 3.3.5 (web.config.3.3.5)
 c. edit the following sections:
SiteSQLServer
MachineValidationKey
MachineDecryptionKey
InstallationDate
other providers: FCK editor

2. backup all the files in the current dnn active site folder:
 D:\wbti\dnn\dnn3.2.2  --> D:\wbti\dnn\dnn3.2.2backup2

3. stop the site so no one can make any changes to the DNN setup or dbs.
  (on IIS control panel)

4. backup the DNN db for this site

5. unzip the upgrade file into the old DNN web folder; it should overwrite any files necessary.
  ( tried copying the files in from an already unzipped structure last time;
 the docs say to unzip directly to the old folder.
 I don't see what the difference might be)
 make sure all file permissions are still correct. the .NET process needs permissions.

6. copy the edited web.config.3.3.5 file to the dnn web folder and rename it to web.config.

7. restart the IIS web service and browse to the site to start the upgrade process.

----  Encountered 3 errors --------------------------
after each error I did the following to reset the DNNDev installation.

1. stopped the IIS server
2. restored the SQL db files
3. deleted all the DNN files and copied the old DNN files, including the old web.config back into the root folder
4. restarted the IIS site and tested it

Error 1:
Upgrading DotNetNuke
Current Assembly Version: 03.03.05
Current Database Version: 03.02.02
00: - Executing Script: D:\wbti\dnn\dnn3.2.2\Providers\DataProviders\SqlDataProvider\Upgrade.SqlDataProvider

Upgrade Status Report
00:00:00.125 - Upgrading to Version: 3.2.3 Error! (seeD:\wbti\dnn\dnn3.2.2\Providers\DataProviders\SqlDataProvider\03.02.03.log for more information)
00:00:01.781 - Upgrading to Version: 3.2.4 Success
00:00:01.828 - Upgrading to Version: 3.2.5 Success
00:00:01.890 - Upgrading to Version: 3.2.6 Success
00:00:01.937 - Upgrading to Version: 3.2.7 Success
00:00:01.953 - Upgrading to Version: 3.3.0 Success
00:00:02.015 - Upgrading to Version: 3.3.1 Error! (seeD:\wbti\dnn\dnn3.2.2\Providers\DataProviders\SqlDataProvider\03.03.01.log for more information)
00:00:02.062 - Upgrading to Version: 3.3.2 Success
00:00:02.125 - Upgrading to Version: 3.3.3 Success
00:00:02.265 - Upgrading to Version: 3.3.4 Success
00:00:02.281 - Upgrading to Version: 3.3.5 Success
00:00:02.437 - Performing General Upgrades
---------------------
03.02.03.log
System.Data.SqlClient.SqlException: ALTER TABLE statement conflicted with COLUMN FOREIGN KEY constraint 'FK_Files_Folders'. The conflict occurred in database 'DotNetNuke', table 'Folders', column 'FolderID'.

--------- Rick ran the SQL scripts that gave errors against the SQL db by hand and we got better error messages that pointed to a problem in the Files and Folders tables. Turned out that there were File entries that listed folders that weren't in the folders table.
-----------------------
seemed to be a problem with entries in the folders table for folders that don't exist and/or vice versa
reinstalled the org setup, ran sync in host / file options for root and viento portals and then the upgrade ran with no errors.

--------------------
but now I am getting an application error,

Error 2:
Server Error in '/' Application.
--------------------------------------------------------------------------------

Object reference not set to an instance of an object.
Description: An unhandled exception occurred during the execution of the current web request.

----------------
does this have something to do with the Duplicate Portal Users warning that keeps coming up before the install?
---------------------
00:00:00.031 - Executing Script: D:\wbti\dnn\dnn3.2.2\Providers\DataProviders\SqlDataProvider\Upgrade.SqlDataProvider

Warning:
Duplicate Portal Users
We have detected that the following Users have duplicate entries (they exist in more than one portal). You need to be aware that after the upgrade, the password for some of these users may have been automatically changed (as the system now only uses one password per user, rather than one password per user per portal). It is important to remember that your Users can always retrieve their password using the Password Reminder feature, which will be sent to the Email addess shown in the table.

ID UserName First Name Last Name Email
3 caceresr Roman Caceres

-----------------
Solved: this duplicate was from a portal I created that was never used; deleted it which removed the username and this error went away on the next attempt.

rolled back, logged in removed caceresr user, and deleted lam portal I had made and no one was using. that username was the only one in that portal.

the upgrade now runs automatically, doesn't stop at the username warning.
BUT: when trying to go to the portal, I get:

--------------
Error 3:
endless wait

Firefox finally says:
The page isn't redirecting properly

Firefox has detected that the server is redirecting the request for this address in a way that will never complete.
 *   This problem can sometimes be caused by disabling or refusing to accept
          cookies.

----------------------

11-2-2006
last try
 logged onto the test DNN site and removed all the aliases with /dotnetnuke folders in them from all the remaining portals

did the upgrade steps again

upgrade ran with no errors
and the site worked!

now, I ran the upgrade from 3.2.2 to 3.3.5 on our Production server DNN setup and it ran fine with no problems or errors. So the Dev site problems were caused by various DB errors created mostly by DNN letting me do things I shouldn't.