Yes, X5680's are better. They aren't unlocked, the X5680 has a higher multi than the X5650. I don't think it's a waste of money, if you have the money. You can compare all kinds of overclocks between the two Xeons here:
 
X5680: http://hwbot.org/hardware/processor/xeon_x5680/
X5650: http://hwbot.org/hardware/processor/xeon_x5650/
 
Since 1366 overclocks with your Bclk(FSB) x Multiplier, the higher multi gives you a higher max overclock. Theoretically, it still will depend on how good the actual chip is for overclocking, some are better than others. This is what we call the silicon lottery, because some CPUs are just plain better quality in terms of overclock potential. For example, I had an i7 930(W3530 equivalent), and my max OC on water cooling was 4758MHz. When I swapped that out for an i7 960(W3565) which had been selected from a large batch, my max OC on water went to 5136MHz, at a lower voltage.
 
On the 930, I did 4.4GHz at ~1.45V. On the 960, I did 4.8GHz with 1.45V. So it really does depend on your actual CPU. The 960 also had a max 25x multi compared to the 930 at 22x.
 
Given that the SR-2 starts to have trouble running blck higher than 200, the 21x multi of the X5650s puts you at about 4200MHz before things start to get tough, whereas the 25x multi on the X5680 would give you 5GHz, provided you have adequate cooling and that the chips themselves can actually handle that speed 24/7 stable(unlikely though). For the X5680's to hit the same 4200MHz as the X5650's, they would only need a 168 blck, which is pretty conservative.
 
Hopefully that helps, if you have any more questions make sure to post them up.

Don't waste your money unless you upgrade your cpus to x5680s for folding :D

Consider the following:
1) Above 1333MHz on RAM, you are likely to start losing DIMMs (they won't detect during POST). That means that running 166 bclk / 1066 RAM will give you 1333 on RAM and it'll work fine, but beyond that you will have to divide down the RAM speed to the point where you'll never hit 1333 again.
 
Up to 180MHz bclk runs pretty stable. Between 180 and 200 bclk it will _appear_ to be table, but you'll notice (if you look for that sort of thing using various tools like OCCT) that the clock speeds wildly spike all over the place, and overall performance tends to drop as ECC in various places starts to kick in.
 
Personally I find the best compromise is 166 bclk with 1066 RAM multiplier. Socket 1366 Xeons tend to top out at about 4GHz, so if this is your target, you are probably best off picking the Xeon with a multiplier such that it Turbo-boosts up to 4GHz, so an X5660 is probably close to optimal.
 
All that said, though - if you haven't bought an SR-2 yet - consider not doing it. It's a money pit filled with frustration. Xeons are _expensive_, and my experience with the SR-2 is easily the most problematic one WRT compatibility of any motherboard I have ever owned.
 
If you have weeks of your life to spend on dialing everything in and finding all the compatibility issues with various hardware combinations and you enjoy that sort of thing, go for it. If you want something that "just works", don't even think about it.