The main thing is: Getting rid of the bottleneck on the 660 :P I assume that's the cheapest i5?
Quite an expensive set
No it's the most expensive I5 because it has the unlocked multiplier. There are cheaper I5's but they can't really be overclocked. I would not go with Phenom II. While it's still capable of playing games it is starting to show it's age. You are going from a old processor to a slightly less old processor.
EDIT: Also if the I5 is still to expensive you can go with the I3 which will be pretty close to the price of the Phenom II and at stock clocks the I3 will be faster.