Whenever you use the Print Assistant wizard, you need to specify "Inches" under "Page Settings" before proceeding to select a page layout. If you do not, you cannot select the 3.5 x 5" layout. This needs to be specified every time, including if you press "Back" from the page layout selection. This is despite the "Imperial System" being selected under Other in the Country/Region & Language menu of the KDE System Settings. This is a fairly old bug that has been around since at least 1.x, although I am only reporting it now.
Could you please check if this is still the case with Digikam 3.0.0?