This probably only holds for string instruments.
If you’re good, you can make any instrument sound a lot better just because you’ve got good technique. If you’re bad, there is no point in owning a decent instrument because you’ll still make it sound terrible. If you’re ‘somewhere in between’ then what you really mean is you’re bad but don’t like to admit it and you oughtn’t to be allowed to play a decent instrument.
I’m not saying everyone should play cheap instruments, I’m merely saying that people get all ridiculous and pretentious about these things. If you can afford a lovely instrument, go right ahead (alright, no, I do feel nazi enough to say that if you’re not a good musician you shouldn’t be allowed, but), everyone likes a nice instrument. But equally it’s not the be-all and end-all.
Oh and for goodness sake look after it.
This is by way of saying that if I come across a violin at Oxfam which I can afford (I might have done, actually, we’ll see), then I would like to own it, pleasethankyou, because I’ve wanted to play the violin for, well, ever, but it seemed greedy because I was already a cellist and anyway my sister never lets me lay a finger on her violin in case I drop it or something and it’s only recently come to my attention that she really will never trust me on this score. So I will own a violin that probably isn’t the bestest ever evar, but at first I’ll be too terrible for it to matter, and then gradually I’ll get a decent sound out of the thing anyway, you see if I don’t.