1.) The i5 isn't limited to 1333 RAM. Almost all of the boards have at least 1600 mhz before needing to be overclocked.
2.) Yes, the i7 has better specs. That doesn't make it a better CPU. The i5 has a feature called turbo boost, where if only one (or two) cores are being used, the other cores are shut down and the ones in use are automatically overclocked. That means that when you game (with 1 core in use), that core is overclocked to somewhere around 3.2 GHz (I'm guessing on that).
The only thing that the i5 is missing is hyperthreading, which while very useful in other applications, is completely worthless in gaming.
In addition, the fact that it's $100 cheaper allows you to buy a better GPU, which is far more important in gaming than the CPU. Basically, instead of getting the i7-860 and an HD 5770, it's not much of a strech to get an i5 and an HD 5850. The difference there is playing at 1600x resolutions and playing at 1900x resolutions.
If you look at the benchmarks, the i5 performs as well as the i7-920 in games. The i7-860 should only be consider for multi-tasking/work PCs that can't afford the 920's mobos and 6 GB of RAM. Which is rare.