Money can lead to greater happiness for the person possessing it and those around them, if it is used to buy experiences, not possessions.
This explains why a spoiled rich kid can have all the toys in the world and still be empty inside. Buying stuff is a short term high, but money also lets you experience more too, and that's what matters in the long run. I'd add another aspect to this -- money is needed to let you connect to other people.
Last year, I spent many thousands on pro camera equipment (dSLR, pro lighting gear, top quality lenses and all the accessories). But along the way, I discovered that I absolutely loved capturing the beauty of life in photos. I got to go to concerts for free, get to know party promoters, connect with cool local SF bands, and help them on their road to stardom in some small way with my concert photography. Same with the various models I did promotional shoots with. I got to take photos on editorial assignments with a hip hop magazine Hood Star Magazine, and got to see a side of hip hop and street culture from the inside I would never have seen otherwise.
My first interaction with Paul Graham and Jessica Livingston of Y Combinator was actually through my photos of Startup School. Shortly afterwards, one of my photos appeared on the front page of the Startup School -- with thanks from PG himself. Awesome, I thought. It might well have given us a small push when we applied for YC later that year. When Jessica invites me to an event these days, she makes sure to ask if my camera is coming too. =)
I also learned the wonder that is a great, functioning user-generated content community (Flickr), and it helped Sachin and I every step along the way as we designed Posterous. Flickr addiction taught me the virtuous cycle that can happen when personal creativity gains a very real audience.
So I think the money was well spent. The experiences it purchased altered the very trajectory of my life. It put me in touch with new and awesome creative people, let me express myself in a powerful new medium, and in aggregate I'm happier and more engaged in my life now than ever before.
The next time you're considering whether or not to drop the cash on that new gadget or that trip or whatnot, think about whether it will unlock new avenues. If it will, consider it an experiential investment. Take that path and good thngs will come.