The effect of diminishing returns I have found is also true of speakers. It is where I differ from a lot of the old school folks. Not that the old school assertion is wrong here, there is a lot wisdom in it that still applies. Nonetheless, with the advances in speaker technology and all the over achieving brands that are out there. I just think it is a bit outdated.
Here is the point I am trying to make. Do not cheap out on the components. Often when I go to friends house they will have an $3000 speaker package and then power it $500 receiver; that either runs out of steam on the peaks or its pricepoit compromises gets magnified by the speakers. IMHO folks who do this sort of thing are not getting the best out of their investment. With a quality source component you will always get the best out the speaker. Speakers do not always get the best out of the source component. (Conversely I believe you do not put in a speaker that are on the cheap either, invest some money into a good product) So I always lean towards investing more of my budget into electronics than most do. Then in a Speaker, look to purchase a high quality, over achieving, budget conscience brands that can do 95% of what the notable ones are able to. Again, living with something like an Salk versus a comparable B&W system that comes in at over double the cost .
In short, don't spend so much money on the speaker package that you no longer have enough left over to purchase an quality receiver to power them. I found that road leads to a lot of disappointment and additional expense.
Here is the way it should be done:
1) Determine the speakers that sound best to you. This is done first because aside from the acoustics of your room and the quality of the recording, speakers are the component that presents the biggest impact on the sound you hear! Differences between speakers are more obvious than differences between DVD players or amps (assuming your amp has enough power for your speakers).
2) Determine how much power your speakers need and buy an AVR/amp with the power you need and features you want. There are calculators for this and the guys here give good advice or can tell you what they use with the speakers you chose. The JBL 580 has a sensitivity of 90dB and the 590 has a sensitivity of 92dB, so power is really not an issue (JBL/Harman is one company I expect to provide accurate specs) and he can really get away with buying almost any mainstream AVR.
If his speakers were Status acoustics 8T's like Gene has, then I would be recommending he still get an AVR like the 3400, but he also add on an external amp capable of staying stable down to 2 Ohms (which can get very pricey)!
I used to have a pair of Paradigm Signature S-2's. I drove them with the SR-6001 I mentioned earlier (bought for $350 refurbished from Accessories4Less in 2009). Because these were Paradigm's top of the line speakers, some people said I should use more than just a mid-level AVR to drive them. I bought an Emotiva XPA-2 and set it up. Thought I heard an improvement, but two years later I let a friend borrow the amp for a couple of weeks to test with his system and didn't really hear the sound get worse. When I got the amp back, I did a comparison and could not tell a difference. I assume the difference I heard when I first put the new amp in was more of an unconscious response to the excitement of having this shiny new amp I had read so much positive about! Once the honeymoon period was over, any difference in the sound was not great enough for me to detect in my room with the 2 minutes delay it took to swap out the amp/speaker wires. Now that I've spent the last 9-10 years here learning about this stuff, it is obvious to me. The Paradigm S-2's have an efficiency of 91dB and the SR-6001 can pump more clean power into them that I would ever want to be in the room with! The S-2's are resolving speakers, but paying more for amplification once you have ample power is not going to make much difference (if any) in sound quality!
I do agree that diminishing return on speakers is "a thing", but with the budget we are discussing here, it is absolutely not a factor. And even so, it is different. I can still hear clear differences between speakers even at the $10,000 each level (which is as expensive as I have had the chance to hear), but the ones I compared were all clearly very good, and it was hard to say which I preferred! IOW, diminishing returns in the sense of how much "better" one is than another.
Perhaps another way of looking at it is I have
never heard two speakers of different series and/or different brands that did not
clearly sound different. I have swapped out several AVR's Pre-pros, and amps over the years and as long as the speakers I used didn't have special needs, I have never heard a difference that I would "hang my hat on" (unless it involved using a different sound setting or EQ system). In "pure direct", my Denon sounds like my Marantz that sounds like whatever amp I pair with my Onkyo Pre-pro!
The bottom line is the design of electronics is a comparatively mature science (aside from those deliberately trying out new approaches), but any speaker designer (or DIY'er) will quickly tell you how many places they had to make choices that compromised their design. Speaker design has plenty of science behind it, but there is still a tremendous variety among the results.
But to the point of your post and this thread, to say that speakers reach the point of diminishing returns in the context of the budget being discussed is absurd! I know, and have compared lots of speaker in this price range ($500/speaker, tops), and if you name a speaker, I can easily name one for a few $100 more that most people will consider decisively better.
