It is a significant upgrade imo and you could overclock it to a super nice clock. The only thing that will be better than it most likely is the Ivy Bridge and perhaps a few oc'd Bulldozers but we won't know till they hit the market lol so for now the i5 2500k is the best choice.
The i7 2600k is $100 more for hyperthreading, a few l3 cache, and a few mhz higher stock clock.
So basically you pay a $100 premium for the label "i7" and hyperthreading when it comes gaming.