Is it possible to do banking turns in 3.5?

It is actually preferable, like what is happening right now. In atmosphere, you can turn harder like this than you can otherwise. If you just yaw for a second, you'll see straight away. Can you rotate with your mouse yaw? You'll see that the ship gets pulled back by the air, and you can't turn nearly as tight as you could if you were to roll and turn. In space, it depends on the acceleration balance of the ship. So ships that have stronger downward accelerations will be able to turn tighter if they roll, and other ships may not have that capability.