I'm hesitating between getting a i5 760 or a i7 860, both of which have 4 cores at 2.8GHz.
The i5 is considerably cheaper -- what is the downside to it? Is it far more limited in the amount of overclocking it can take?
The main factor in overclocking is the quality of the CPU that you get, which is a matter of pure luck.
I quote from OverClocking Risks:
However, you should be warned that with overclocking, you risk one day to burn-out completely your CPU. Luckily, there are warning signs that shouldn't be ignored, such as the occasional unexplainable crash.
This review should help you out in figuring out what the differences are between the 2 processor families. In a nutshell:
So, Core i7 CPUs offer higher memory bandwidth. I don't think there are extreme differences in overclocking potential between the 2 families; I think it's more of a case by case basis for each CPU.