This is what I've got in my gaming rig, and I love it! Wint actually makes a good point that the second-generation i5 processor is still the sweet spot for gaming in terms of price and performance.
The i7 Ivy Bridge (3rd gen) is definitely the better processor, but not by much. I haven't seen any benchmark testing for any game indicating a noticeable improvement in gaming between the i5 and i7, partially because the vast majority of games don't take full advantage of the i7's power. The i5 processor, whether you go second or third generation, gives you almost as much "bang" for a much better price.
If you're a computer components enthusiast, and your primary goal is simply to build a computer with the best components, then get the i7. If your main concern is getting awesome gaming performance without spending more money than needed, then get the i5.
One more thing... if you plan on overclocking, but you've never overclocked before, then you may want to consider getting the second-generation i5 processor (either the 2500k or the 2600k). You can overclock the third-generation i5, but the Ivy Bridge processors (although they run much cooler at stock settings) heat up rather quickly when overclocked and require aftermarket fans. The Sandy Bridge processors (second generation) can supposedly be overclocked really well with far less concerns of cooking your CPU.
I bought the Ivy Bridge i5 processor because I have no desire to overclock. My video card is a 560ti, and I'm very, very happy with my machine's performance.
Oh, one more thing... the Ivy Bridge processors are equipped with Intel HD 4000 graphics, which are probably good enough to run most games on low settings in the event that you're ever without a video card for any extended period of time. This is an improvement from the Sandy Bridge processors. Edited, Jan 1st 2013 2:06am by Thayos