As noted, choosing good headphones is particularly important. See this thread for some thoughts on specific models. We found it helpful to "practice" before the trip. Don't let the kid watch anything for a couple weeks prior to the flight unless (s)he uses the headphones. That worked great with our not-quite-2yo last spring, but I would think it would work well with a 3yo too.

As for specific portable DVD players, they all seem to be crap these days, so I'd probably just get the cheapest one you can find if you really want to go that route.

But we skipped buying a DVD player and just use a laptop. On a 3.5 hour flight with other activities (coloring books, etc.) as your first line of defense, a typical laptop should work just fine for playing an hour or two of video--particularly if you've ripped them to the hard drive so you're not wasting battery spinning the optical drive.

Another option if you don't want to schlep a laptop is to get a "portable media player" (iPod Video, Archos, etc.). These are really coming down in price, and they should be smaller, less fragile and longer-lasting (battery-wise) than most portable DVD players, for not a whole heck of a lot more money. If I was going to be doing a lot of flying with my toddler, this is probably the route I'd go.