In my humble opinion, this old hoary debate will always remain a debate for several reasons. As you right mentioned, the reproduction environment in most cases is woeful at best. Most speakers are not even full-range to begin with, their cabinets resonate, their drivers cannot often keep up in complex multi-layered music, their passive crossovers do a half-assed job in distributing the sound to the various drivers, and so on. Then, the amps are weak so they start bottoming out and start clipping when the speaker impedance and phase dips sharply in certain frequency bands. Then the electronics, especially the capacitors and power supply cannot keep up. Then the cables are not fat enough or are not shielded enough so they load up the power amp even more. Then the pre-amp adds its own coloration to the already feeble signal coming from the source. Then the DAC does its own thing and further colors or degrades the source signal even more. Then the source adds its own share of noise and jitter to the audio signal that screws up not just the signal quality (bad enough) but even the timing of the music.
On top of it, the room comes into play. The room adds its own coloration and effect that is often a far bigger factor that the audio system itself - boosting certain frequencies while muddying and deadening others, and even adding echoes, reflections, etc.
Then there is the human being at the end of the chain. I personally can't even listen above 16KHz, and I have average ears. I suspect many people are like me too, at either end of our audible spectrum. On top of it, we humans hear music very differently - while our audio range may be fairly similar (20hz to 20khz by popular definition), our sensitivity to *variations* in tone and timing varies drastically - many often have off the charts sensitivity to even slightly off-key music (I do) or slightly off-beat music (I do not at all).
All in all, a decent headphone setup is far far more revealing than a decent audio setup. At a thousand dollars, you can probably assemble a decent headphone, but an audio system will sound atrocious, unless you are willing to spend a whole lot more effort and research in second hand discrete gear OR are willing to do serious DIY.
Anyway - I also wanted to say one thing - the thing that gets neglected the most in all this is actually the quality of the source recording - or what people call "mastering".
Most people who say something like "SACDs sound far better than redbook CD" or "vinyl sounds far better than CD" are most likely saying this because a whole lot more care went into recording the SACD or vinyl compared to the cheaper mass market CD or mp3.
If I look back at all the albums I have purchased or listened to (in whatever format), the one thing that stands out to me personally is that I have found less than 10% of them to be "recorded with care". And I'm not even being picky! Across the board, I can say that recording quality sucks when it comes to rock (which is what I listen to most often) - and I mean all kinds of rock.
If Neil Young's initiative (and even his Pono device) and Dave Grohl's initiatives are successful in improving the audio quality of music in general, I strongly suspect it will be because recording quality will be done with greater care, not because they decided to use a fancier digital format or use higher number of bits and samples to store their music. While everything becomes a factor by the time the music reaches your ears (heck, by the time it is processed by your brain, you even have to factor in psychoacoustics and gear bias and the "burn-in" syndrome) - the recording quality in general needs to improve (except for the jazz and classical pieces that audiophiles love to love, and are hence recorded with care), and this improvement will arguably make the biggest difference in audio quality.