I agree with your larger point about diminishing returns but I’d have to disagree with the price point of making an “amazing” espresso or latte. My $800 home espresso setup makes drinks that are at least on-par with the local 3rd wave shops (although my latte art is pretty bland). To me, the reason for those very expensive latte machines at the shops is volume (pulling multiple espresso’s simultaneously) and durability— my gaggia definitely couldn’t handle hundreds of drinks per day.

Do you mind sharing which one you have?

Sure, its the Gaggia Classic. I bought it refurb a few years ago and it's been very solid. I modded the steam wand, which is done a lot and I would recommend if you go this route. Here's a tutorial:

http://www.gaggiausersgroup.com/index.php?topic=1484.0

Remember that a proper grinder is at least as important as a decent espresso machine. I've been through a few but have finally found the excellent Rancilio Rocky Doserless, which was also refurbished.

A few other accessories like a bottomless portafilter, a knock box, and a milk pitcher for steaming, some good beans and you're pretty much set.

I think my whole setup was less than $600 and I have never regretted it. It takes some time to dial in your grind but you'll be beating your local barista's shots within a few months (and at a significant discount).