There are just too many changes for any upgrade to be workable. I would suggest backup all your existing courses, unzip them, strip the code out of the text parts and then in v3.5, paste the remaining text into new courses. Upload images individually. This takes time, but unless you have thousands of users, and hundreds of courses, you are going to be bored as opposed to being frustrated and seriously stressed. You can dump your users into a csv file by using phpMyAdmin, which Hostgator supplies, and that csv file can be simply uploaded to your new Moodle. Just check to make sure it is properly arranged and if not, then some careful editing in Excel can usually fix it. You can even add in additional fields, new data, new users anything..
To set up a second Moodle on HostGator may not work. First there is the space issue, and depending on your plan, HostGator may view your new Moodle as a second site, and may not allow you to do that. Seriously suggest if you have a laptop or a desktop may be better, download and install the latest Xampp Moodle. refix you courses to to new Moodle as suggested above. Drop your old Moodle, entirely, as well as the moodledata folder and database. Then install the new Moodle and database. Restore the repaired courses to that. In any case, doesn't matter what you do, it's going to take time and patience to get it right.
As for fixing the original problem, as an alternative, see if you can find the download file you used to set up your old Moodle. Unzip it and extract the editor folder. Go to you site, place it into Maintenance Mode, delete the editing folder, replacing it with the newly unzipped editor. Take your site out of Maintenance Mode and test it, see if that works. The connectionless state of code in web apps allows you to do this without compromising other parts of your app.