How close to the real thing?

That we can hear what the tune is, understand the lyrics, recognize the instruments, the individuals playing the instruments, where they are located in all dimensions, whether they are in key or out of tune, hear what brand of instrument and what brand of amplification they might be using and in many cases what kind of hall they're playing in, suggests to me that we're closer rather than farther to the real thing. If we weren't, why would we spend so much money and time in this hobby?

Atmasphere, as usual, has something to say. Those of us who play an instrument which can be amplified (classical guitar), know that even cheap mikes and speakers can sound more "real" than any recording. The storage systems are the most destructive to the sound. That said, I think much of the disagreement comes from the type of music considered, and its venue. I have performed on stage (I sing tenor) with huge orchestras, pipe organs, and in the case of some memorable Russian music, with an extra large percussion section. Even though the din got so loud at times that I could not hear my own voice- and a fraction of a second later all was full stop but for a single voice, yet there was never any sense of strain or was there difficulty in hearing the soloist.
It has been observed by some cynics that a group of musicians can sound exactly like a loudspeaker, but not vice versa.

We do have another issue- one which might explain why the headphones work so well:

The original performance is always in a space with its own acoustic signature. The mics are always in that space too.

Your room is not.

So the idea that the musicians are going to be 'in the room' is tricky. IMO/IME, the model to use is that your stereo and the room its in is a sort of 'space/time machine' that has the ability to graft itself *onto* the original space of the music- but with the acoustic signature of your room included.

With headphones you have no acoustic signature of your room- only that of the mics. I don't like headphones, as I feel like the sounds I hear are coming from behind me sort of. So I prefer the presentation of speakers, even though they often take things down a notch. Of course, headphone can't make you viscerally feel the music the way live and speakers can...

Everyone have a good holiday, y'hear? :)

Yes, removing the room signature with digital equalization is a most promising technology. I have used the Tact system for years. Goes without saying that it is a work in progress, but a little recognized benefit is the lowering of the noise floor. Tubes are great, but they are noisy compared to digital amplification, and that noise obscures quite a bit of detail. I hasten to say that digital amplification is far from perfect, just saying that it does some eye opening things right.

Have you ever been walking down a residential street on a summer day and heard a musician practicing his guitar, horn, drum set or whatever in his apartment? You know immediately, don't you?