i5 is actually (slightly) better for gaming in most cases. The vast majority of games can't/don't use hyperthreading.
I got an i7 because I edit video and the extra threads shorten render times.
There is a bigger difference between the 1st and second gen than the 2nd and third.
If you can get a sandy bridge chip (2500k for instance) at a big discount, then go for it. But ivy is a little better, so if prices are close, get the ivy. (Like the 3570k)