That is a rather silly statement.
The 3.5" screen is a remnant of the PDA form factor, in fact I still have a PDA with that screen size.
As a result, many of the early PDA phones had 3.5" screens.
HPs, O2 XDAs, and others started making phones with that screen size in the beginning.
Beyond that for more modern variants there are the Touch HD, Touch Pro 2, E90, Asus P835, P6500.
And there are a lot more upcoming phones with that size or larger, like the Asus nuvifone, and the list goes on.