My stats are such that 8% of my users are using < iOS 4.3, and of that 8% slice almost 3/4 (or 6% of my total users) _could_ update to something newer, but they're happily running old iOSes.
If I were to cut them off, would that magically make them upgrade? I don't think so. They'd just be bummed that their apps stopped working.
Remember, the problem listed will only take effect if:
* Their iTunes has downloaded the latest version, and
* They have to restore their device from a backup
Doing an update to your app to remove iOS3 compat won't remove it from folks' devices, iTunes won't push it to their device, and it won't magically stop working. Seems like such a small thing to worry about, especially given all the cool things in iOS4 and above...
It's entirely possible that your 8% of users avoiding 4.3 despite its availability aren't tech-newbs, but are making a conscious effort to not update their OS.
In which case nothing short of "finally decided to get a new phone" is going to get them to upgrade.
Obviously this will vary from app to app, but I’m surprised that you have such a high number of users with an older version of iOS. Is that across all of your apps/games?
However, only 0.7% of devices are iPhone 3G and lower, so the majority of users I see running <4.3 are not updating out of choice.
This is all anecdotal, though - figures will vary dramatically across apps/demographics/etc.