i am currently running a 3.5 games with 3 players. It actually started as 2 players running two pcs a piece. A third player was added, who started out playing 1 character and eventually adopted a second.
This has been good since it's hard for our group to convene regularly. Combat has run preety smoothly since no one player is out of the action for very long. The one drawback is roleplaying. The 2 characters that are controlled by the same PC tend to follow eachothers lead (so there is much less time spent debating, but also less time developing characters). I have tried to offset this with a good deal of character background for each of the PCs, but it tends to work out taht there is one primary PC (who does all the talking) and the secondary (functional PC).
Defintely something to think about with small groups.