Well the $1000 point is a very tough cut off point.
First thing that stands out to me is that, no, this is not the point of diminishing returns. I used to think that diminishing returns starts early but they don't.
However what is true that - at least for speaker systems - diminishing returns are absolutely true around the 1 grand point and especially true for $2 grand to $2500 point
if you don't shop smart!
I've seen a good amount of high priced stuff in the mid and high end. Imo a lot of the higher priced stuff can be either not really that great or can be equally performed with
smart purchases on cheaper gear.
For instance Martin Logan's motion speakers are really nice sounding units. Their much pricer impressions not near worth the increase. Same goes for some higher end B&W Sonus Faber, Mcintosh stuff I've heard. Sure they sound good but I really have heard very similar sounds at much cheaper prices.
As a side note because of the OP's interest in LH labs - I have heard the Geek Pulse. Though it did have a certain level of resolution and a very good headphone amp, overall it wasn't as good as a much cheaper dac I tried. For me. I know somebody that disagrees though.
BUT that doesn't mean that diminishing value starts early. It just means you're not shopping right. You can get stunning improvements if you do. So don't be fooled by people saying one spends thousands more for only a 10% difference. Not true.
My system is about 4-5 grand and the most recent addition was a set of Emotiva XPA-1 gen 2 monoblocks in balanced mode and copious room treatments. The sound increase was obvious and surprising. So even at the 4-5 grand point, you can get worthwhile improvements that are not diminishing.
So the good news is at about $1000 there is some really smart buys.
I'll present the pricey version and the budget version.
Pricey reccomended version:
Headphones:
the HD6xx is a great buy or a used sennheiser HD600: APPROX $250.
Emotiva Basx A-100: $230
The headphone amp here should absolutely be the Emotiva Basx A-100. A true match made in heaven for these headphones. I thought with the jumpers bypassed to allow direct drive this unleashed the amps true potential. The value on this headphone amp cannot be understated. The fact that it's also a pretty impressive speaker amp is a huge bonus.
The DAC.
DC-1 $500
The best DAC I've heard overall has been the Emotiva DC-1. Fantastic unit with tons of resolution. Imo its resolving power beat the Schiit Gungnir Multibit - though the multibit was able to outdo it in some other ways.
That's $500 very well spent imo. Its resolution and very natural tone can really shine on the HD600.
And that's it.
2 channel Speakers:
This is harder because buying a good amp means spending most of your budget on electronics. So I suggest powered speakers.
Emotiva DC-1 $500
Emotiva Airmotiv 5s $500
Coming in the door with copious punchy bass and a very resolving sound with its AMT tweeter. Just resolution all around.
Can be used as main speakers in a small living room as well.
ATS acoustics room treatment - one panel. I prefer mine behind me at head level. Other configurations possible. $55
https://www.atsacoustics.com/item--ATS-Acoustic-Panel-24-x-48-x-2--1001.html
It's $55 + shipping. Yes room treatments sound strange and unusual. Yes it's really needed.
Tot price : $1070
Alternative amp version
Audioquest dragonfly red (to lower price) $100
Emotiva Bas a-100 used as speaker amp $230
Some set of Axiom Audio speakers like the m50 tower, M5HP bookshelf or better yet USED axiom towers. $1000
Approx $1500-1600
Budget version
Headphones:
Audioquest Dragonfly Red $100
AKG ATH M50 headphones. $150 Note if you have the money go for the HD600.
Headphone amp
Emotiva Basx A-100 with the jumpers engaged (these headphones are pretty darn efficient.) $229
Tot price: $480
Speakers:
Audioquest Dragonfly Red $100
Emotiva airmotiv 4 or 4s used - approx $250
Ats Acoustic panel: $55
https://www.atsacoustics.com/item--ATS-Acoustic-Panel-24-x-48-x-2--1001.html
A ridiculous $400
Find a better speaker setup for that price. Go ahead, I'll wait!