I'd say definitely go for a 27". The larger screen is worth it and you'd get used to it fast. When I bought my Mac Pro back in 2006 I had the choice of either getting a 30" Cinema Display or an upgraded Mac Pro and a 23" Cinema Display (due to budget). I ended up going for the larger screen and that has been the best computer hardware purchase I've ever made. I've moved on from the Mac Pro now but I still have the screen. I had to struggle by with a poor graphics card and poor amounts of RAM for ages but it was worth it. In my opinion, having a larger and higher resolution screen is the best way to increase user experience enjoyment. Trust me, if you go for the big screen you'll thank yourself that you did.
As others have said, the i5 has more processing power than the i3. The i3 is locked at two physical cores and two virtual cores at 3.2GHz whereas the i5 has four physical cores at 2.66GHz which can turbo boost up to 3.2GHz.
In practice what this means is that the i5 and the i3 will both run at the same speed for single threaded tasks (3.2GHz) but the i5 will be faster at multicore tasks (4 physical cores @ 2.66GHz vs 2 physical + 2 virtual cores @ 3.2GHz). The virtual cores don't always give performance boosts, in fact in a lot of multicore applications they don't at all. In some they do (in stuff I do I get about 50% extra performance due to having hyperthreading). The i5 refurb also has better memory performance due to the different platform designs which will surely boost performance in some areas.