I think there's some confusion here. The 4690k, 1231v3 and 1241v3 would all perform similarly. All are compatible with 1150 whether it's a z97, h97 etc. Depending on the board, the bios version it's currently using and the bios version needed to run any of those cpus a bios update may or may not be required.
As mentioned, the extra cost for the 1241v3 wouldn't be worth it. Obviously a 4690k wouldn't overclock with an h97 board, it would benefit from a z series board but overclocking isn't a requirement so neither is the z series board.
The confusion I see is in this part - "the 4690k doesn't only have better gaming performance but the unlocked one has 3.9 GHz compared to the locked ones 3.5." At the same clock speeds the i5 and xeon will perform the same in terms of games (leaving ht out of it). A few games will benefit from the ht, most will not. The i5 4690k isn't better for gaming performance. It's not worse, it's just not better.
The unlocked one having 3.9ghz compared to the locked version is entirely wrong. Stock core speed for the 4690 and 4690k is 3.5ghz. Turbo (max, 1 core fully loaded) is 3.9ghz and makes no difference if it's a k series or not. That's turbo boost and is already built in. Overclocking is pushing all 4 cores to 3.9ghz or higher, the ability when paired with a z series board to go to anywhere from 4 to 4.6, 4.7ghz. Above and beyond turbo boost.
Similarly the 1231v3 has a base clock of 3.4ghz and a turbo boost up to 3.8ghz. It's not 'stuck' at 3.4ghz, the 4690 non k isn't 'stuck' at 3.5ghz and neither is the 1241v3. A windows reinstall wouldn't be required for switching out the i3 for an i5 or xeon since they're using the same motherboard. Only when switching out motherboards is it recommended to do a windows reinstall (when the chipset changes basically, loading the appropriate drivers for all the onboard devices which are likely different). 100mhz speed difference won't be enough to show up in gaming performance.
Technically the xeon would be a bit better in a small handful of games due to ht. If going with the xeon I'd probably opt for the less expensive 1231v3. The vast majority of games ht makes no difference and in a very few handful ht has lowered performance a bit. The 4590 is within 100mhz of the 1231v3 and within 200mhz of the 4690. It runs $200, the 1231v3 runs around $255. Personally I don't think ht is worth a $55 price premium, especially for gaming. It works out to around 25% more cost for around 5-10% more performance if that.
The op wants to upgrade their gpu which is a good choice, that's the biggest bottleneck right now. A lot of different ways to go but it depends on priority. If gaming is the priority, I'd probably go with the i5. Save close to $60 and put it toward the gpu. If considering a $200 gpu combined with the $60 saved on the xeon that's closer to $300 - bringing something like the gtx 1070 much closer within reach. Not that the 480 is looking to be a bad gpu but the 1070 is undoubtedly a much stronger gpu. If blender is more of a priority or equal priority to gaming then the xeon makes more sense and the 480 will still provide good gaming performance.