At the lower end of decent hifi there most certainly is a law of diminishing returns in my opinion. To get a decent sounding set of speakers you need to pay around 1k GBP second hand and probably half that per each other component. Above that you experience relatively minor sonic improvements and below that it can be the opposite and major depending on component match/mismatch. I've owned a lot of low end hifi over the years due to being skint for the most part, but I would never spend 50k on a sound system unless I was absolutely filthy rich and money no object.
Currently I have a modest set up of 2 x Roksan M2 power amps with a rotel rc1550 pre amp, arcam cd21(now fixed!), rotel rcd 12, ifi audio zen one, monitor audio rs8's, monitor audio silver rx2's, Sony mds jb980(I hear you laughing!), 2 x technics 1200's with ortofon club 2 carts, 2 x denon sc6000's with x1850 mixer. Wharfedale sub(cant remember the model). This is my downstairs listening room.
Upstairs I have a rotel ra1520 integrated amp with another ifi zen one, bowers n wilkins 685 s2 speakers, arcam cd21, bowers n wilkins asw600 sub. Plus focal alpha 80 studio monitors with a motu m4 soundcard and rme baby face pro fs.
With the exception of the sc6000's none of this equipment cost more than 1k per component so you can achieve a good level of sound reproduction without a huge price tag. OK if you put all this together it would amount to a lot of money but obviously a lot of this was bought second hand over a number of years.
I like to think I've built a great sounding system on a budget and there is probably only the minidisc player that isn't really hifi, although it's still good for what it is-it was bought for recording mixes before computer audio technology took over the mantle so to speak.
What I will say is coming from an electronic audio background a prefer a more clinical sound which is possibly the opposite to most hifi buffs but each to their own eh. I think the monitor audio and bowers and wilkins speakers do a fine job of taming the sharp end and smoothing out the overall presentation.
