Possibility of upgrading the CPU

I think you're going down an expensive & risky venture here.

While these two series are very similar iMac10,1 & iMac11,1. I'm not sure you can swap out the logic boards cleanly here as Apple tends to move things a bit between the series.

Maybe someone can tell us if they have done this swap out.

Lets say you can swap out the EMC 2309 logic board for one of the EMC 2374 models. I think that is far as you should go with the 2.8 GHz i7 CPU (I7-860) board.

I wouldn't waste the effort trying to swap out the processor. Switching CPU's can be tricky as you need to locate a chip that is compatible with the socket, does not exceed the TDP of the current CPU. As you can see by clicking on the CPU link above you will have the most powerful chip Intel introduced in this lineup.

I think buying a used iMac system with 2.8 GHz i7 CPU you want will be cheaper in the long haul.