Indeed, it's amazing what happens once you get a reasonable setup. Years ago, I got myself a pair of Grado Labs SR60's -- reasonably priced headphones that sound just absolutely amazing. My first discovery was that the sound card in my PC was beyond useless. I could hear buzzing when I moved the mouse and, if I tried to scroll a window, it was far more pronounced. Turned out that the CD-ROM drive's internal audio output was significantly cleaner. My next discovery was that one of my favorite Bobby McFerrin CDs had been mastered by a pack of raving lunatics who must have plugged their mastering board into a two-stroke diesel generator. I believe the audiophiles refer to this quality as "revealing".

In my home theater, I decided to blow most of my budget on quality speakers (VMPS RM2's) and everything else is fairly pedestrian Japanese gear. My speaker wire came from Home Depot and my cables are Radio Shack's "Gold" line. This worked out pretty well. What I really want now is a larger room. If I wanted to get silly, I'd go for sound-absorbing foam on the wall behind the speakers.

Edit: And my favorite bit of incomprehensible audiophile dribble came from one dealer where I was listening to some overpriced speakers. I brought along a CD-R I'd burned with a variety of tunes to really stress all the different aspects of a speaker (some jazz vocals, some big band, some classical with serious dynamics, and some techno with deep bass). One salesman said that, when you burned a CD, you were loosing "at least 20%" of the sound from the original CD. (These were straight WAV rips; no MP3 compression.) Interestingly, several of their "audiophile" CD players simply couldn't handle a CD-R, while the more pedestrian gear worked just fine.

Standard joke: What's the difference between a used car salesman and a stereo salesman?

A: The used car salesman knows when he's lying.