What are we really trying to replicate?

Lets look at it from a way of not trying to reproduce the same loudness in your home.A live amplified concert that has good sound quality from sitting in the audience,has a lot different sound than it would close up.If you got within a few feet from their speakers,most would say that it sounds bad.In this case,distance does work wonders.If we put those amps and speakers in our home,we would have some fairly bad sound.That gear is made to satisfy the needs of a large area,and distance.If the recording engineer does a good job at capturing that recording,we want the best we can buy for our home system to give us a nice illusion of the original.Don't forget that we are a lot closer to our speakers,and hear imperfections a lot easier.We hope our home system does sound better than the recording we are listening to.There are always above average recordings that we would want to hear reproduced as good as possible.I don't think any system could sound too good for our home.If our gear isn't the best that could be had by us,what would we miss out on when we listen to above average,or superb recordings?A lot of us look for better mastered versions of the recordings we like.How can we have a system that sounds too good,as long as it sounds great to us?There are always new,or remastered recordings that give us the need to have the best gear we could obtain.I would think everyone that's here system is ready for that next great recording they run across.The major problem a lot of times is to find a great recording of the original performance done by the band or orchestra(musicians)of our choice.Loudness doesn't satisfy the listener if it sounds bad.

I can't speak for anyone but myself,so keep that in mind.I listen mainly to rock music and frankly,I don't want my system to sound like a live concert.Have you ever been to a rock concert?If you have then you know what I mean!!I go to concerts to hear the improvisation that most bands do during their live shows.I have only attended a few concerts that I would consider sounding as good as my system.Pink Floyd's "Animals" tour at the Olympia Halle in Munich,Germany stands out as one of those few.Opinions vary so you are surely free to disagree with mine.

I agree with your basic point. Few things irritate me more than attending a "live concert" and instead hearing the PA system, which is certainly inferior to my home system in all aspects but ultimate sound pressure levels.
Acoustic instruments are the result of centuries of evolution and refinement, and as previously noted, are impossible to reproduce. I applaud the "unplugged" movement in popular music. Unfortunately, however, PA amplification has intruded into many traditional acoustic music presentations, like opera and folk music. This robs the audience, especially the young audience, of discovering the difference.

(1) At what point does the level of an audio system exceed the level at which it was recorded and/or transferred to media?
I think the answer is simple, if you are looking at it incrementally you stop improving your audio system when the improvements stop adding to the enjoyment of the recorded music you listen too.

I've come to a very simplistic conclusion on this and it's that somehow the ear and brain knows when the music being played through a system sounds musically right and engaging. If your system does this, what else is there to strive for? There will always be recordings, as well as live concerts that just suck! I think in a good system, a studio recording should sound like you are listening to the music the way it was recorded in the studio and not how it sounded in an arena or stadium. Let's not forget that we don't close our eyes at live concerts, so the brain is also impacted visually. With all of the possible variables, it's up to you to either simplify or complicate
the matter. Watching a baseball game on TV can never be the same as being at the game, same thing for this striving for an Absolute Sound!