Are there any performance benefits when installing CF3.5 on a device in the RAM that already has CF2.0 in ROM?
The application's I'm creating don't necessarily need the new features in 3.5, however what are the benefits if any by using 3.5 installed in RAM over 2.0 in ROM?
For sure, I would only use 3.5 if it contained features that I absolutely needed that weren't in 2.0. If you use and install 3.5 but don't use any of the 3.5-only features, you won't see any benefits at all (it may run a tiny bit faster, but probably not).
Even if you are compiling against 2.0, I'd still recommend using 3.5.
CF 3.5's runtimes themselves are faster. Substantially so in some areas (like XML parsing). 2.0 applications can also be run against the 3.5 framework with an app.config or a machine.config file setting.
3.5 also has some bug fixes that may or may not impact you, and it has way better internal exception handling, so if you run into problems it's often easier to troubleshoot.
I'd also advocate 3.5 personally so you can use LINQ and other features of the 3.0 compiler.