I don't entirely buy into that line of reasoning, but I have heard it.
Still, I agree that there's no need to spend $1000+ for a nice suit.
I'd also point out that a $400 suit which is properly tailored and fits perfectly, will almost always look better than a $1000 suit which is off by half an inch here and an inch there. One will also feel more comfortable wearing it. Despite this, far more men are willing to spend an extra $100 for a better suit, than are willing to spend $100 on expert alterations by an experienced tailor. (I suppose it's similar to how some people will spend a couple of thousand dollars on a DSLR, but refuse to drop more than $125 on a lens for it. Or to the fellow who spends $65,000 on a sports car, but cheaps out on tires.)