Anandtech has an interesting article on how various hard- and software affect the gaming experience.
Human responce is said to be somewhere between 150 and 300 ms. Add to this the time spent within the game engine and logic, the graphics driver and hardware, and the relevant IO devices such as mouse and monitor.
As a result, with the wrong hardware you are – as a gamer – already a big step behind the competition.
Update: See also this story on slashdot. Some of the comments seems to carry insights as well.
Tags: game engine, gamer, gaming, human responsiveness, input lag