I have an Asus maximus forumula X38 and i want to get the new core i7 processor. Will they work with each other?

NO.

Core i7 does not use socket 775, it uses a new standard.

No it will not.

What is the best CPU avaliable that i can get that works on the X38?

That depends, what is your budget and are you going to overclock?
I would look at the Q9xxx series or a highly overclocked Q6600 myself.

Q9*** series is the best chip you'll be able to use. i7 won't work due to the fact it has an IMC (Integrated Memory Controller) therefore needing a different type of motherboard. You'll be able to get a Q9*** for a decent price and then overclock the bollocks off it and it'd make a VERY good chip. Heck, the old q6600 is a bloody good chip still, especially when overclocked to over 3ghz.

No, its a totally different socket type. Even the physical size of the chip is different, and I believe its half pins and half contacts?

Nope - all contacts, 1366 of them. (technically, a land grid array connection, hence LGA1366)

Ahh ok. I know on the X58 Rampage Extreme 2 review on anandtech the socket looks 2 different shades of colors, thought it was pins AND contacts