Xeon is for servers, correct, Extreme simply mean they have an unlocked multiplier which means they are more easily overclocked. Penyrn doesnt really fit in there, for instance you can have a Yorksfield Extreme edition chip. Its like apples and oranges. And Quads will be much better for applications yes.
I would go with something like a Core 2 Quad Q9550 2.83GHz for around $500-600, and even though your not a gamer, i could recommend an Nvidia GTX260 or 4850. I reccomend the 260 because you will be able to use it to convert movie files etc faster than your quad core ever could.
hidefcomputers.net is the official link, but in some parts of the world it is not yet active.
That's a temporary link (im getting a proper URL soon) to my website, goto Performance systems then look at the OmegaGTS computers. I could drop the price for you by changing the video card to the 260 instead of what is listed.