There is a patch available that addresses echo on phase 2 IP sets, but I don't believe that phase 2 sets are supported on 3.5 - only 3.6 with a firmware patch.
Typically networks/LAN won't cause or induce echo, unless there is a high variance in jitter during the duration of the call. My experience has been that echo on IP sets is typically caused by "hot" trunks. In the case of T1/PRI, you can increase the CSU buildout to pad down the signal levels.
Does the echo happen from IP set to IP set, over IP trunks, PSTN trunks (analog or digital)?