This debate continues all the time.
You can get great gear if you use your head wisely. I have purchased a Shimano Curado 201 SF for $40, a Shimano Calcutta 251 for $30, and a St. Croix Avid spinning rod for $65, all new. Would I buy an Ugly Stick for $30? > No way, not when I know I can find deals like the ones above.
I think you can catch fish on just about anything, including kite string on the end of stick with a worm on a homemade hook.
IMHO, the better quality equipment that is available today is worth it but you don't have to break the bank to buy it.