HD3 is made in Japan while the HD5 is the first Malaysian Sony flagship.
So, with the HD5, we've seen reports of easily scratched screens, the flimsy usb door, cracked buttons, and units occasionally freezing up.
My HD3 has never frozen once. It been dropped twice and the metal snap on the flap of the HD1 case has hit the screen half a dozen times(It's hard to hold the flap open while stretching out the elastic sides of the case). I haven't got a single mark anywhere on the player body or screen.
The HD3 comes in Blue, Pink, Red, Silver, and Black. There are 3 different screen colors Rose with the pink, Blue(Red, Black, and Blue), and Gray(with silver). The Hd5 has only one screen color and only three unit colors.
The HD5 has 3 menus while the HD3 has only one.
The reviews say that the HD5 takes up to 7 or 8 seconds to boot up. The HD3 takes 3 seconds.
Still no on the fly playlists or fixing of real issues compared to HD3. Examples like; slightly bigger screen yet now playing screen shows no more info, no deleting songs on the unit, Eq not fixed yet, etc.
They did give it 6 or 7 hours more real use battery life, more bookmarks, a rotating screen, initials search(why?). These are nice but most are not really useful at all. I want a dock, improved sound quality, real playlisting, loseless codec capable etc.
The HD3 is under $200 shipped on ebay and $200 at Sony. If you really want a Sony, either get the HD3 or wait for the next version which will probably have an FM radio(like their new flash players) and a better screen. Hopefully they wont rush(like the HD2 and HD5) and will fix some of the deficiencies that both players have.
There you go $50-$100 cheaper(depending where) a little better built and easier to use it is the better buy. If you are left handed you may give the HD5 a real improvement there since the HD3 is really only made for right handed people.