Friends hi-fi system not very good, what do you do or say?

I tend to take the attitude that if they own it and seem to like it, my opinion is irrelevant. I have a friend who is fond of saying "good enough for who it's for" and we all draw the line in the sand that separates acceptable and non-acceptable in a different place. It seems most audiophiles are on the side of its never good enough...and I find it very hard to constantly be dissatisfied.

If asked questions about setup or what I think in general I will respond with polite answers until I am sure they can handle and really want the truth. Then I will offer my opinion. "more power for these speakers wouldnt hurt"  "a bit closer to the wall might help solidify bass response" Moving your listening position out of the bass null in the room will help make for a better listening experience and so on. Not openly critical but suggesting tweaks to make whats there work better. If they are good friends and you know they are open to this by working with them to improve it, you get the satisfaction of helping another person you like along their audio journey. And like the Grateful Dead said, "what a long strange trip its been"

I appreciate and am interested in what somebody has created with their rig and discography. I'm definitely up for a listening session. It's always nice to hear another rig no matter the value of it or experience of its owner. 

This is an easy one.  “sounds nice.”  If your friend likes it, that’s all that is required.  If he asks for suggestions on how to improve it in some way, I would make suggestions consistent with his budget.  I would not suggest a Shunyata Everest ($8K+) for a $5K system, for example. I don’t think that most people really want to hear how others think their system sounds unless they know it is nice.  For example, with my system, which is “high end” but certainly not in the stratosphere, I don’t ask friends.  I just put them in my perfect listening chair and put on music.  100% of the time, they have been blown away (but none of my buddies are audiophiles either).

I'd do the same thing when someone brings a bottle of agonizingly bad wine over.  I'd open a better bottle and let him see the difference.  If he couldn't tell the difference, c'est la vie - end of discussion.

In the case of the audio end of things, I'd invite him to bring over the same record/CD he played and play it on each one of my three systems (which have slightly different strengths and weaknesses) and see what he hears.  

He might turn out to be unable to detect differences (in which case, end of discussion), or they might jump out at him immediately and could start a discussion of why it was different.  Either way, I'd avoid offending him.  Telling someone that their system sucks is like saying his wife is ugly - no coming back from that!

I would say I really like your system and that I have been really stupid to spend so much money on my system and here you have a really nice system. I just wanna listen to music and enjoy that after all.  I wish I was smart as you.

And then they ask you what you have in your system, and of course that’s really what I wanted to express anyway but I did it in a cute sort of way. And then he’ll be complementing me on my system saying I bet it really does sound pretty good you shouldn’t be critical of yourself. Can I come listen to it?

Then I would say if I had to do it all over again I would just buy an integrated receiver with basic speakers and call it a day and be just as happy. Now I drive myself nuts trying to learn more and more and recognizing I really haven’t learned much at all. Truly frustrating experience to pursue this and never get to a point where you’re satisfied with anything. and Looking at my car and saying wow I could’ve done a lot better.

And then the guy is basically providing me comfort for my awesome system and he hasn’t taken offense while we mutually have a common understanding at this point that his system probably isn’t as good as my system. And now he’s envious of me and that’s just fine.

Yeah, I suppose this makes sense if his envy is your goal.

Really though, this seems like grade school playground logic.