Are you saying your base is 3.40? Or you want to go to 3.40?
If your base is 3.4 then yes you can. E3 will downgrade any firmware that's on a ps3 that isn't 3.56 base or more. The flasher doesn't give a crap which firmware is on it!
And yes, I successfully downgraded my ofw4.31 to Rogero 4.21 this weekend using it.
It will likely let you apply the update bin onto the e3 nor, cos its only drawing power from the ps3 nor. But you're getting those errors because you're trying to take a nor dump from the ps3 and don't have a proper seated connection to all the pins on the clip to the pins on the nor, then you will get errors. It took me hours to get this going for me. Ended up putting a fair amount of pressure on the nor to get it to work.
The biggest tip is to not reassemble the ps3 after you've clipped the flasher until you've completed the downgrade. I just attached the back plate of the motherboard and mounted the fan directly onto the CPU and GPU. Then I put the mobo back in the case, and plugged in the mobo, so I could power up. Once all done I pulled the flasher out then rebuilt the machine. My 2nd ps3 is dual boot, and for that I would never use the nor clip, it's certain death! Use the e3 linker...