Is the i7-2860 worth the extra $200? How much difference would I notice between the 2760 to the 2860?

That depends how much those $200 worth to you.

I have a W520 from work with the i7-2860. A co-worker has a W520 with the i7-2820 (a 2.3 ghz quad core vs. 2.5 ghz quad core) - the machines have the same amount of RAM, same Intel SSD and both are FHD displays with Quadro 1000M discrete graphics. We have been working side by side often the last month or so and I can't "feel" a performance difference between the two machines for our workload (software development with IBM's Rational tooling and WebSphere server stack).

If it were my $200, I'd use it towards an SSD and get the 2.4ghz quad instead of the 2.5ghz quad upgrade. Someone else may have a workload that indicates something else... good luck.

No functional difference. Put that money towards an SSD instead- you'll get much more bang for your buck. In fact, 240GB drives are starting to get to that price point, so if you're worried about losing too much disk space that should nullify those concerns.

That, to me, seems to be the answer to your question.

I think the 'wolfman' has a valid point and I will go with the 2760. I'm not getting a SSD now as I need large storage for virtualization and running databases (mostly SQL Server and DB2).

Thanks for the advice.