In my experience, the most common points of failure in the B18-B20 engine are the camshafts and the piston compression rings. Most common is for the top piston ring to break, which lowers the compression in the affected cylinder to the low hundred's. If you are confident that compression in number 3 is only 35 psi, its most likely to be a bad valve, or both compression rings are broken on that cylinder. That happened to me once. The car ran, but idled very roughly.

The "simplest" thing to do is to pull the head. You can diagnose a bad valve, broken rings or failed cam shaft at this point. No "special" tools are required to pull the head, but a good, complete set of mechanics tools is needed. 122's are almost entirely "english", so you won't need any metric tools. You need to remove the valve cover, and pull the rocker arm assembly to access the head bolts. Disconnect the upper radiator hose, heater hose from the back of the head, temperature sending unit, choke cables, fuel line, ignition cables, throttle linkage and the exhaust manifold flange to the exhaust pipe. Once the headbolts are removed, the entire head with intake and exhaust manifolds can be removed.

A burned valve can usually be spotted by looking at the valve head. Broken rings can usually be spotted by looking down the piston bore, and noticing how wide the stripe is on the top of the cylinder. In a normal cylinder, there will be a dark brown or black stripe around the top of the cylinder that is about 3/8 of an inch wide. If one ring is broken, the stripe will be wider, probably about 5/8 of an inch. Both rings, the stripe will be wider still.

I wouldn't worry about the spark plug color. If cylinder 3 compression is that low, the spark plug test won't mean much.

Good luck
Steve