Well .... it depends IMO.
Looks? Well. .... you aren't going to get something that looks like a top of the line PRS cheap. Does looks matter? Only to us ;).
As for tone ..... you can absolutely get great tone out of a less expensive guitar (note, I didn't say "cheap").
You have to start out with the basics first and foremost:
1) The setup has to be good. A poorly setup guitar will sound bad no matter how much money you put into it.
2) The basic intonation has to be there. After you get the setup right, some cheap guitars are simply not capable of getting all 6 strings to have good intonation up and down the fretboard. If they can ... CHECK! You are off to step 3.
3) A good bridge and a good nut will give your strings life (oh yea, and use some strings that aren't 3 years old).
Now, you SHOULD have a guitar that sounds good with absolutely no amplification. If you don't have that first, no amount of processing will help you.
4) PUP's are a matter of personal taste IMO. You don't have to spend $300.00 on Lindy Fralin's or Bare Knuckles (I use these because these are what I run. I am a hypocrite) to get something that sounds really really good IMO. You will likely need something better than what comes stock in a $300.00 guitar though.
5) Make sure your electronics are actually wired in right with good pots.
If you start with a 3-500 guitar, put in the upgrades above, you will likely be around 600-1000 when done. I would argue you cant really get a guitar that sounds better for any amount of money. You can definitely get one that sounds different though.
Also, the neck is important to more than just intonation. Some necks just FEEL right in your hand when you play them.
Anyway .... that is my 20 cents