I'll try to explain this as I understand it. Others please chime in and make any corrections.
When we talk about a full wipe we mean 'wipe data/cache' and 'wipe dalvik cache'
The rule of thumb is that when you are moving from one ROM or custom ROM to a newer version of the same ROM you usually only need to 'wipe dalvik cache'. I say usually because if the dev included a big upgrade, like going up a version of android, it'll probably be suggested that you do a full wipe.
As you indicated you retained all your settings which is great but also what can cause problems. The data section of Android still has stuff from 2.3.5 and now you are running 2.3.7. Sometimes, depending on what changed between versions, that really doesn't matter. That's the reason you can get away with just wiping the dalvik cache if it's an incremental upgrade for a custom rom, the changes aren't usually drastic or they are handled with code.
Similarly, when Google upgrades the OTA path from 2.3.5 > 2.3.7 they know everything that's in 2.3.5 and they can handle making sure moving up to 2.3.7 can happen without needed to wipe data. But they are Google and for a dev to do that would be much more work than having people wipe their data/cache.
Usually, I just wipe dalvik, at least a first. Then if I start to run into things like force closes, sluggishness, or random reboots, I'll bite the bullet and do a full wipe.
It's really not bad when you use Titanium Backup and do a daily back up of just your apps and their data. I can usually have a restored phone in about 15 minutes.
The important thing to remember about Titanium Backup is that there is a way to backup then restore system data too. you don't want to do that because you'll just put back stuff from the previous version and will cause yourself the same problems you tried to solve by doing a full wipe.
Hope that helps! You might be OK with not wiping for this upgrade, wiping data/cache is the equivalent of your IT department telling you to "reboot". It'll fix a slew of issues 90% of the time so it's a preemptive step to alleviate support posts