Law of Diminishing Returns; where does it kick in?

I have not heard them, but I guess from all the comments on Agon, the Nordost Valhalla throws cables out as a choice for now.

All components have this. The one component I am least likely to spend a lot of money on is the digital front end. I have a heavily modified Link DAC by Stan Warren with his modded Aiwa CD Changer. I bought it used/mint from a friend of Stan's in Oregon for $500 shipped. I figure I would have to spend a lot of money to do better; and how much better? I assume my dollars would be better spent elsewhere.

Going the other direction I can probably go the furthest in improvement without diminishing returns with the speakers; the amp second.

So much depends on what you want in a system. Getting that extra little bit definitely costs quite a bit more. With speakers, if you want that big, live sound, with lots of air movement, it is going to take a big speaker, which in turn is going to cost more money than a smaller speaker. Is the sound worth the difference in price? That would be for you to decide.

If you spend $80K for a BMW, is it 4 times as good as a $20K
Honda? For some people, it is definitely worth the money, but it is also relative to what we earn.

This is not an audio only issue, it is relevent to most things; clothes, cars, women, etc. :)

Based on used prices (45 cents/dollar) I'd say full range speakers at 8K; amps at 5K; preamp at 5K; cables at 1K; CD at 6K; TT at 3K. So for about 35K in my estimation you have a high quality reference set up with preferences in intonation/timbre/presentation rather than weaknesses...

The rule of doubling is my rule of thumb. Noticeable differences occur when you DOUBLE the list price of a component. Since this is a geometrical progression most people reach a plateau very quickly! Please note that this is a VERY crude scale, and has much less of an application for speakers and cables.

Your question contains a false premise, I think: that there's some real relationship between price and sound quality. There is, today, some wonderful stuff at very reasonable prices, and some really bad stuff with price tags in the stratosphere. And given how much personal preference plays into this, it's quite possible that price and quality are random for any given consumer. That said, I'd offer a rule of thumb for three items:
Speakers: never.
I/Cs: $10/meter
Cables: $0.50/ft.
Beyond that, it's all personal preference.