Hi Tim! I currently weight 365, but at one point I weighed well over 400lbs. I've always been a runner at heart. A long time ago (it seems now), I weighed 350 and was running 2 miles a day. At one point I was down to 260 and running on the college XC team 5-10 miles per day. Last year I was running 2-3 miles weighing anywhere from 330 on up. I may have started working running in when I got down to 400.
By the way, I'm 26yrs old, you didn't mention how old you are, as that might play a part.
Anyways, anymore, I hear a bit more cracklin' and popin' in my knees than I like. Not painful though. It doesn't hurt when I run or lift weights like squats. Still, I decided I'm not even going to think about running again until I lose some weight. I don't want to take the chance that I could be doing long term damage to my knees that I wouldn't even notice until years down the road. I know my dad had a major knee surgery in his 30's. Not a replacement, but maybe a reconstruction? Anyways, I don't want that. Not in my 30's, anyways.
As for you, 3.5 sounds like a brisk walking pace. I don't think you have to worry about hurting your knees walking, even at a fast pace. You might consult a doctor though and get their recommendation.
There are other low impact ways to get cardio in that are no worse than running/walking. My favorite is the rucumbant exercise bike. Its been my staple cardio for a long time now. Its also a huge ego boost, because unlike with a treadmill where bigger people struggle while still going slower than our lightweight counterparts, bigger people tend to have stronger legs and can do higher resistences on the bike simply by means of being bigger (more mass behind the push). It wouldn't translate to more speed on a road bike, but on a stationary bike it makes me look like a cycling stud
If you still want to run, one thing you can do is get very good running shoes, and replace them somewhat often. It might get expensive, but it'll help.
