Maybe it's not true.
Ports 1,2 and 3 have fixed internal pullups. When configured as inputs they pull high and will source current when externally pulled low.
If P3 bit latch contains a 1 logic, then the output is controlled by the signal "alternate output function". On P3.0 we have RxD Alt Output Function. This gives you trouble.
Try to change the input from switch to P3.4

Silviu