If you add an ESX 3.5 host to your vSphere Cluster,there is a change you’ll get this warning:
The solution is simple, you need the “old” license server running in your network. So download the “old” license server from http://vmware.com/download/vi/drivers_tools.html
Install the License Server for ESX 3.5 on different server than your vCenter box. I tried installing it on the same box, but it ended with a failed startup of the License server services. The installation is straight forward (read next, next, add license file, next and finish).
After the installation open the vCenter Service Settings option.
And enter the address of your license server and press ok.
Now it’s possible to add the ESX 3.5 host to your cluster.
ICT-Freak.nl 
Hi Arne,
Did this setup actually work? In a ESX 3.5 / vCenter 2.5 U4 environment I once set up a license server on a different machine than the vCenter server. ESX started complaining that the servername of the license server and vCenter server were different and I was unable to start any VM’s on that ESX host.
Bye,
Rudolf
Hi Rudolf, This setup works but only with vCenter Server 4.
Hi Arne,
I just updated our test system to vSphere without removing the existing VI3 license server, all was fine and the two co-exist fine, do you think it is because you tried adding the VI3 license server on top of vSphere ?
It is also mentioned in this document here: http://www.vmware.com/pdf/vsphere4/r40/vsp_40_upgrade_guide.pdf
That worked! Thanks!
Only thing to remember is to open TCP ports 27000 and 27010 on the Windows firewall.
Too bad the 3.5 license server does not install on Windows 2008 R2 64bit (I got an error about rights at install time).
This makes migrating to vSphere vCenter on 64-bit and new OS a bit harder.
You can also install the License server on a temporary Windows Server 2003 VM. It does not have to be the same server.
Found thjs post when solving the same problem. There is a KB describing this problem (http://kb.vmware.com/selfservice/microsites/search.do?language=en_US&cmd=displayKC&externalId=1018118), there should be working version in VC2.5 U6 installation package. Dunno, why we have to download whole bundle and not just the license server package…