It appears that Mozilla has decided to reversion 3.1 to 3.5 due to the sheer number changes that have been made. The current Firefox v3.1 Beta 3 is the last version that will be labeled v3.1. There's a 4th beta planned which will be label Firefox v3.5 Beta 4.
"The increase in version number is proposed due to the sheer volume of work which makes Shiretoko feel like much more than a small, incremental improvement over Firefox 3: TraceMonkey, video tag and player support, improvements to user controls over data privacy, significant improvements in the web layout and rendering platform, and much more," said Mozilla's Mike Beltzner in a blog post last week.
This is probably a good marketing idea and I do think there's enough changes in 3.1 to warrant a higher revision number. I suspect most people would have thought that v3.1 was a very minor upgrade, when in fact there's a lot of significant changes—even if most of them are behind the scene (such as TraceMonkey, Web worker thread support, improvements to the Gecko rendering engine, etc.)