Can a great system make a mediocre recording sound good?

Play “ocean” by JB3 and then the live version. Totally different.

In my experience, a well resolving system makes a mediocre recording sound worse, as it brings out everything in that recording

Not really, you may just experience a higher degree of "not greatness." 

I have found however, it can cut a little both ways. Several recordings that I thought sounded pretty good went kind of flat while others that had sounded dull took on a new life after I changed gear...

As a wise person wrote above "upgrade at your own risk"

Still, there are many happy surprises...

I just had my amplifier so upgraded that it is essentially new except for the case, and a new pair of speakers so I know what your going through.

Yes, the "room" sound plays a big part but I think you know that already.

I have had many GREAT improvements by doing simple tweaks, like Tip Toes and fuses etc. Try some of those if you haven't already.

There are a ton of inexpensive and DIY solutions that can make a big difference.   Don't throw out your amp just yet... 

And of course price doesn't equal performance. It's a lot of previewing and seeing if all the gear talks to each other well.

All the best on your search for  musical enjoyment!!

One of the traps that we audiophiles fall victim of is that we often do not prioritize the musical merits (performance values) of a recorded performance as the focal point of the listening experience.  Instead, we focus on the “sound” of that recording  and then, if only subconsciously, compare and judge the quality of that sound relative to what is possible…the sound of the truly great sounding recordings.  So, as one’s system evolves and becomes more truly transparent the sound of deficient recordings may be perceived as “worse” because the sound of truly great recordings has been revealed to be even better than previously thought.  The bar has been raised, but this doesn’t mean that the sound of poor recordings is now “worse”.

For me, taken on their own merits (and with some exceptions as pointed out by mikelavigne and others) “poor” recordings can often sound better on a truly great system; in great part because more of the musical details of a good performance will invariably be revealed.

It might make it better, but probably won't make it good...