My collection runs the gamut from a $99 Squier Mini Strat to Gibson Custom Shop. My opinion is that 90% of guitars out there, given some TLC and a good setup, can be perfectly fine, serviceable instruments. There are the 5% of guitars that are absolute junk, such as the First Act Garagemaster that I played at Guitar Center one day. Good lord, that thing would be better off as firewood. Then, there are the 5% of instruments that are truly something special. These would include the Anderson S-style guitar I played in Austin a while back, the Fender Custom Shop Eric Clapton Strat I played a few years ago, and the Gibson Custom Shop SG Standard that I am lucky enough to have in my personal collection.
Guitars aren't like computers. Generally, if you pay more for a computer it has a faster processor, more memory, better video capabilities, etc......stuff that can be measured quantitatively. One of my Strats is a mutt of a Mexi-Strat that I've modified to the point where the only thing original on it is the body, knobs and pick guard. I'd say its a fine instrument, more than able to hang with my American Vintage Strat. Out of the box, my American Vintage, which cost much more, had better electronics, bridge materials, fit and finish. As far as the wood itself, I'm not sure there's a massive difference. The Mexi-Strat may be composed of more pieces of wood, but whether that translates into the final tone I can't positively say. The Mexican Strat has a Callaham Bridge assembly, new neck, Klein Epic 55 pickups, etc. I'm very happy with how it turned out, and would say its a professional instrument through and through.
I've done a similar upgrade to a generic Korean single-cutaway guitar and ultimately no pickup or bridge upgrade could overcome the fact that its made of plywood. I spent way too much time and money on it, and next to my Custom Shop Gibson, it just feels lifeless.
Sometimes a guitar can be expensive, well-made and a fine instrument, but not be right for what you're looking for. I had an Ibanez like that. Spent way too much on it, and later on decided that the style of music it was suited for was not what I wanted.
Ultimately, I think the end player is who decides whether a guitar is great or not. I've played a $7000 Gibson CS Les Paul that had me scratching my head on how such a pricey instrument could have such bad fretwork and feel lifeless whereas I've played an under $1000 Mexican Fender that I fell in love with instantly. Cost does not equate to necessarily "better". That said, I don't think I'll ever go down the road of buying a cheapo instrument, upgrading it to the gills and then taking my chances that I'll like it, because that's really a crapshoot....you can end up with an awesome instrument or you can end up pouring money down a hole. Probably a more expensive guitar you have a greater chance of it being "the one".