Is KDE 3.5 dead ?

Short answer: no :)
Long answer: from the point of view of the official KDE project, KDE 3.x is definitely dead - noone there still doing fixes/improvements for it (IMHO), which is a shame.
Ok, I understand the limitations of ressources/manpower etc., but still: giving up a good product long before the successor reaches its full feature set (if it ever will) isn't that cool. Additionally, as the successor (KDE 4.x) has (MHO) too big demands at the hardware level (just won't run reasonable well on some low end/older graphics cards).
But, as stated, fortunately, KDE 3.5 still lives on: in the Trinity Project .
I can only recommend for all KDE 3.x addicts, to check this out.
For myself, I have already prepared some of my favourite KDE 3.x programs (which are not included in the trinity project) for direct use, even if just for Debian Squeeze.