It isn't about the HP you're "losing" - it's about the KR that you're not gaining. A 3.5 can actually give a higher gain in HP because of the lack of KR that comes with it. Case in point - if you currently run a 3.4 with 0-2* of KR at WOT - and say you run 13.9-ish. If you take that same car and put a 3.3 or 3.25 on it - you will likely run slower - because the increase in KR that is going to rob HP. In my '02 GP I had 1.9 RR's, 105# springs, 3" DP, PEM's, FWI, NGK plugs, ported SC and ported TB, 3.29's and shift kit - all on a fresh rebuild that ran a 14.0X on a 3.4 pulley on a 90* and humid day - it would have run 13.8X easily, but I forgot to turn on performance shift in the PCM

. It had a DHP v1.0 tune with only trans tweaks to accomodate the 3.29's. I had only blips of KR at WOT, so I decided to drop to my 3.25 and run. I ran almost .2 slower - and had 4*-6* of KR at WOT. With the 3.4 - had I had perf shift enabled - I would have seen 13.8X at 100+ without anything more than a canned tune. With further tweaking, I would have been able to drop to a 3.3 or 3.25 and gotten to maybe 13.6X.
The point I'm trying to make is - there are a lot of cars out there that pop soon after a 3.4 pulley is installed. It's the most popular "instant gratification" mod out there and damage occurs mostly due to ignorance as to the potential consequences. A 3.5 will still provide a noticeable gain - without the huge jump in KR that typically comes with a 3.4.
Getting off my soapbox now...
-Swash