It's unlikely the gain (in control) or loss (from distortion) would compare to the change in sound quality you would experience from getting better speakers. I've got a lot of experience in pro audio and studio situations, so I've got quite a bit of exprience with hardware eq's. They are good to have when you need them, and a really nice one can be worth it's weight in gold, but the average computer system/gaming sound setup is NOT limited primarily by tone control. As was mentioned above, you can do that in software easily enough, and it will be as high quality as any hardware eq you'll buy for under $250. If you were going to spend more than that, I may suggest getting a surround receiver and running digital to that as opposed to just adding external processors. Then you could have automated room correction and such.
As an aside, what are you using for speakers?
as another aside, the amount of signal loss (which is not the same as distortion anyhow) that comes from adding a component is probably waaaaay below what you can hear, unless he were to add a $20 radio shack eq or a broken one. Most of the source material you're listening to went through a half a dozen components before getting recorded. What will degrade the sound is crappy components with audio signal paths that aren't clean.