Grix :
How is it possible that some people have theirs at 4GHz stable?
All chips are slightly different - even two from the same area of the wafer. A chip with a lower VID will tend to overclock better than a chip with a high VID. Some motherboards are better overclockers than others. Some cases and coolers are better than others. And some people have more experience wringing performance out of their systems. And some of us have just been doing this longer.
Unlike any of the Core2 quads, a C2D chip is likely to reach the voltage limits before it reaches the thermal limits. So it is not surprising that at a relatively high core voltage setting, your core temps are so low.
This should be your first stop.
Core2 Overclocking Guide
http://www.tomshardware.co.uk/forum/259899-11-core-overclocking-guide
Next stop should be a guide for your particular motherboard. Google is your friend.
Go through the guides. Then take your core voltage off Auto and set your memory voltage to factory recommended values. Change the System Memory Multiplier (or whatever your BIOS calls it) from AUTO to 2.00, 2.00B, or 2.00D - whichever you need to set the Memory Frequency to twice the FSB. Then when you increase the FSB, the memory clock will rise in in proportion with it. At an FSB of 266 MHz, your memory clock should be at 533 MHz.
The wrong memory settings will break your overclock. At 3.5 GHz, you are running at about 320 MHz FSB freq. Assuming that your memory settings are on Auto and you have DDR2-800 RAM, your RAM is running at (320 MHz/266 MHz)/800 MHz or DDR2/960 speeds. There's a very good chance that this is causing your overlock to fail.
Download CPU-Z to check your FSB:RAM ratio. It should be a 1:1 ratio. Running the RAM faster than the FSB freq improves performance little if any.
Overclocking RAM:
http://www.tomshardware.com/forum/251715-29-ratio-myth
Don't exceed 1.45 volts core voltage or load temps of 70 C.
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Overclocking since 1978 - Z80 (TRS-80) from 1.77 MHz to 2.01 MHz