With AC 3.5, there is a new parameter PLND_EST_TYPE: Precision Land Estimator Type
which is default set to 1 (Kalman Filter)
Either the Kalman Filter implementation is bogus, or not compatible with an IR-LOCK sensor.
When you set this parameter to 0 (raw sensor data) IR-Lock works brilliantly well in Precision Loiter and Precision Landing mode.
@rmackay9 this needs to be documented in the wiki or fixed. With the Kalman filter enabled, the drone starts randomly bouncing in X and Y direction by several meters with increasing speed as soon as the beacon comes in sight. (see logs in my post above) At lower altitudes, this can become a serious issue and potentially harmful to people standing
Video showing the bogus behavior: