What is the difference between an Intel i7 and a Xeon quad core processor?
The current line of Xeons are based on the same architecture as the i7. The difference is usually that the Xeons are the cream of the crop. They run cooler and at lower voltages and are spec'd for 24/7 continuous usage. Otherwise, performance is usually identical. Xeons are able to be used in multi-socket motherboards, where i7s are not (which is why the Mac Pros use them).
Xeons are also usually the first to be updated. There are 6-core Xeons, but not i7s yet, though they are still based on the same architecture.
The additional reliability of the Xeons is very important in servers, especially rackmount and blade-enclosed servers where the lower heat dissipation and power consumption are essential. These benefits usually don't mean too much to all but the most extreme overclockers though, so people in the desktop segment usually ignore it due to the enormous difference in the price of both the CPU and the motherboards needed to support them.
Another difference between Xeon and i7 is that the Xeon supports ECC memory, the i7 does not.
Also, some Xeons are designed to work in multi-CPU systems, whereas absolutely no i7 models do. As such, if you want a multi-CPU system, you must use nothing less than a Xeon.
why do people not use the Xeons in a high performance desktop?
They do, but they're referred to as "Workstations".
Workstations are essentially a server, but with expansion abilities more like a desktop.
You get all the benefits of a server (symmetric multiprocessing, stability, management, hot-swap, etc.) plus the things you wouldn't normally have in a server, like video card(s).
Check out Intel's Workstation pages to find out about their current Workstation boards like the S5000XVN, S5520SC, and WX58BP.
We've been building systems like these (SMP Xeon workstations) for years for AutoCAD usage at many clients, and for various number crunching machines at the local university (engineering, stats, astronomy, etc.).
They're awesome to use, and expensive. :)