Those cut outs are called OS swaps. If the entire game's data can't be loaded into RAM, WHDLoad's "emulation" must be paused while the real data is read from disk.
Odds are that 3.0 left you just barely enough RAM to run without OS swaps. 3.5 has new OS modules that need to be kicked in, which use RAM rather than the existing Kickstart.
You can add the tooltype PRELOAD to the icon of any WHDLoad game to force it to load in all data to RAM, but if you don't have the space, it won't work.
