There are increased costs to more MegaPixels.
- I need to have more storage for my photos - bigger CF/SD cards, bigger hard drives
- I need to have a faster computer with more RAM/CPU speed, etc.
- It takes longer to import bigger files from your CF/SD card to your computer.
I upgraded from an XSi to a 7D. I ended up buying a faster card reader, and ultimately a new computer as well.
Having said that, I enjoy having more MP on the 7D so I can crop into smaller sections of the photo and still have a usable end result.
As far as the whole better gear = better photos thing. I depends upon the types of things you are shooting. The reason I upgraded to a 7D was because I was taking pictures of my kids sporting events. Badly lit gyms, etc. I needed fast shutter speeds in poor light, couldn't use flash, so higher ISO capability was needed. I was also interested in the faster FPS and the better AF system. I definitely get a higher percentage of usable photos because I can keep the shutter speed a bit higher now. The higher FPS allows me to capture more action shots and have more keepers. If I wasn't doing this type of photography, the XSi was fine. In fact I still have it and loved the results I got.
So, better gear isn't a requirement to take great photos, but some types of shots are very hard if not possible with lesser gear - for technical reasons.