Which is better — single high speed processor or double lower speed processor

I'd be inclined to choose the 2x nelaheim processors configuration. You've said you'll be running a lot of websites which can translate to a lot of web application threads, and 2 4 core processors translates to a lot of multi-tasking ability, and the throughput on the newest intel processors is much improved over their older processors. You should also see some very good memory performance from that architecture too, which should help with serving website content nice and quickly.

From what I've seen, there are five things to be aware of for i-series processors vs Xeon series processors:

1. Xeon processors can typically be used in motherboards that support multiple CPUs; i-Series processors cannot (just like the sales guy told you). This is by far the largest difference between between the processors themselves. Certainly a good i7 processor has the reliability and raw performance available to handle a server load, as long as you're still in the single-cpu range.
2. Motherboards for Xeon processors are available with more memory slots. This is important if you need more RAM (or will over the life of the server).
3. Motherboards for Xeon processors are available with much higher memory and PCI bandwidth, which can make a huge difference in performance, especially for certain types of workloads common to servers.
4. Motherboards that support i-Series processors tend to expect desktop grade RAM. Motherboards that support Xeon processors tend to expect server grade (registered) RAM. Of course, you can find server boards and desktop boards that support both types of both CPU and RAM, but the typical situation with each board is to match the RAM type to the supported CPU type.
5. New chips from Intel tend to come out as server processors first. This means that most Core i7 processors have a Xeon processor that is almost an exact match. But at the very top end, there will likely be a Xeon processor that doesn't (yet) have an i7 equivalent. This only matters for top-of-the-line hardware, though. — Note: Since I wrote this, it's become more common to have many-core Xeon models that never see an equivalent i-Series release.

We see here the biggest difference between the two is often the supported motherboard rather than the CPU. That said, often those additional features from the motherboard are not needed, and you can get still acceptable performance out of an i7, or even an i5.

Assuming you do have acceptable performance, it's number four above that still matters to you. If you have both an i-Series processor and desktop grade RAM, you're not really running production-level server hardware anymore. It might work fine for a while — in fact, it will probably work fine — but then again it might not, and that's not the kind of risk a good sysadmin wants to take. The failure rate and average longevity just aren't as good... but for the context of this question it's the supporting cast you're worried about here, not the processor itself.

In this case, given that they offer registered RAM with a server-class motherboard, if you are comfortable with the performance level of the hardware then this might be a good fit. I'll add that at time of the original writing, the best Core i3 I could find on Intel's site was a dual core with hyperthreading. The worst Xeon I could find was a quad core without hyperthreading (that lined up more closely with an i5).