Timbral accuracy for acoustic instruments and voices may be more important, but imaging is right up there as one of the best magic tricks a fine home audio system can beguile us with. In fact, "realism" may not be the point, as bkeske seems to say. He quotes snapsc, who asks (rhetorically) whether or not it's possible to precisely locate instruments by ear at a concert. Fair enough; it rarely is. But the veritable auditory hallucination that a good recording played on a fine pair of speakers in an acoustically excellent room can achieve is nevertheless a thrill. For smaller ensembles up to chamber orchestras, it greatly adds to one's appreciation of complex music to be able to pick out individual instruments; one can follow their musical lines more easily in part because you can “watch” them, “keep your eyes on” the performer you're listening to— and yet, your eyes are, of course, closed. High-fidelity audio at its best does for me something that I think no other experience in life does, not even being present at a live performance: music, which is a temporal art, becomes spatial. I can “watch” an acoustic drama unfold without seeing, just by listening.
An example: the Orpheus Chamber Orchestra has a recording of Beethoven's incidental music to the "Creatures of Prometheus" that is full of astonishingly spatially specific passages. Track 7, for instance, begins with a harp on the left, which is joined by the violins playing pizzicato, also on the left, and then a solo flute, just to the right and behind the violins. Then an oboe comes in on the right, then a clarinet just next to the oboe on his or her right...and then a solo cello, on the far right of the stage, to the oboe's left and closer to the listener. I very much doubt those precise locations would have been so palpable had one been at the original performance.
This imaging magic has actually led me to appreciate middle movements of symphonies whose first and last movement crowd pleasers had, for decades, stolen my attention. The middle movements in Haydn or Mozart or Beethoven, even Bruckner and Mahler, tend to be more like chamber music, with solo parts for woodwinds. Such subtleties are much harder to appreciate unless your system can make them really come alive.