At about 2017 EDT, approach control cleared the pilot to descend from 7,000 ft to 2,500 ft and began providing vectors for an ILS approach. About 9 minutes later, approach control advised that radar contact was lost, but no reply was received. At about 2042, radio contact was reestablished and the pilot stated that he had lost his "level instruments" and would return to Terra Haute, IN. Subsequent transmissions revealed a loss of the attitude and heading indicators. The pilot continued flying for a while, but was unable to control his altitude, airspeed, or heading. At about 2109, the aircraft crashed in a wooded area. A witness stated that he saw the plane go in and out of the clouds which he estimated were about 100 ft high. He said the plane then circled for about 1 or 2 minutes, while it was climbing and diving. Also, he stated he saw the plane just as it came out of the clouds and go into the trees about 600 yards from his position. Optional equipment for the Beech J35 includes vacuum-operated directional & attitude gyros.