I faced the same problem and it looks like changes to knime.ini did the trick for me. Now I can launch 3.5.0 application.
The problem is I have installed 3.5.0 using manually downloaded files and now two separate setups exist on my disc. I would prefer to keep only one installation, just upgrade my old 3.4.1 setup instead of downloading all extensions for the new 3.5.0 environment.
Unfortunately there is no such option available, upgrade in file menu displays message that there is no new version available...