What exactly is the difference between an i7 920 and the Xeon X5550?
Besides the higher QPI, I don't see any difference for the price. At that
price, I'd rather have the 965 Extreme.
In many ways they are the same. The differences that break them apart are subtle but important:
1 - The i7 920 only has one QPI, thus only supporting a single processor per motherboard. The Xeon X5550 has 2 QPIs, thus supporting two processors per motherboard.
2 - The Xeon has support for ECC memory.
3 - The thread balancing is slightly different for the Xeon and could give it a very slight advantage over the i7.
4 - If you look closely, the TDP for the Xeon is also lower (95W vs 130) and has a higher thermal spec (75C vs 68C).
EDIT: As just a noob pointed out below, the Xeons also have a lower voltage range compared to the i7s (.75 - 1.35V vs .80 - 1.375V)
Essentially, the new Nehalem i7/Xeon lines are from the same mold. The i7 was Intel's rush to get their new technology (integrated memory controller - well, new to their CPUs anyway). In actual performance, you will see little difference. In some ways, the i7 chips are not typical "consumer" chips. That will probably fall to the i5 series (a true Core 2 replacement) whenever they ship.
The reason you are seeing the massive price difference is not only because of the differences mentioned above, but the Xeon chips are manufactured to much higher tolerances and only the cream of the crop make it out of the nursery (note point 4). These chips are the industrial grade processors designed to function more efficiently and in harsher, more demanding environments. They can take more punishment while still functioning at peak capacity - hence why they are commonly known as server grade processors. This higher quality standard results in lower yeilds compared to the i7s as I mentioned before. Not all the chips that come off the wafer are going to meet the stringent requirements to be a Xeon processor.