So why do people pay extra for them vs. Core CPUs?
Big business have no time to sit around doing their own benchmarking and stress test to see if there is any real difference between Core and Xeon chips. One day late in making a decision or one day of downtime cost them hundreds of thousands to millions, far more than the difference between a Core and Xeon chip. Plus, they don't have to to waste like sending the chip for RAM or replacing one blade due to a defective chip. It's not just real gains, but peace of mind.
The tech guys in those companies have probably been convinced by Intel that Xeon processors are more reliable theoretically and more imprtantly statistically.
After all Intel does divide all the chips they produce to different lines from China blackmarket to Celerons to Cores to ULVs to Core Extreme, to Xeons.
It's a combination of real quality difference and extremely good marketing.
People pay 40 dollars for bottled water, half a million for wine, why not for Xeon?