MIDI is just a controller signal format. You can do pretty much anything with that – digital VST etc. instruments are nowadays most common, but there are also hardware synth units and even physical instruments you can control with MIDI, e.g. Disklavier. All these are in a sense MIDI instruments, though they aren't all digital. For keyboard instruments, it is thus save to say that in principle, MIDI can hold up completely with traditional, purely mechanical instruments.
Even without something as fancy as a physical reproducing piano, you can get pretty far nowadays: there is a vast number of good virtual instruments available now, among them really convincing piano, organ etc. emulations.
- Many work just by recording an insane amount of samples of myriads of dynamic levels, decay variants etc. – personally I consider this a bit of a flawed approach entirely, not only because of the considerable amount of harddisk memory you need but also because you can't really produce sounds that the makers of the sample library didn't conceive you might want.
Nevertheless, some many samples as there are available there's really a lot of nice stuff you can do with them. Check out what companies like East West and Embertone have to offer.
- The alternative, in principle superior IMO (though it's not quite as mature yet), is physical modelling. For synthesizers this has always been done: more or less closely simulate analogue synth circuitry with digital algorithms. The same idea works also with mechanical instruments, though it's a lot more difficult / computionally expensive. For piano, I really like Pianoteq. (It can also do a couple of not-really-so-piano-like instruments.)
At least for recording, either of these approaches will give you much “better” results than anything a beginner could feasibly achieve with, say, an affordable acoustic piano.
Now, that's just for keyboard instruments. For pretty much all other instruments you can't describe controller signals that well with MIDI, because they depend heavily on continuous parameter modulation (vibrato etc.) and MIDI, let's face it, is just archaic, a really rather broken design of stupid 7-bit controller messages. Apparently you're mostly fixated on keyboards, but should you want a guitar sound it would obviously be reasonably to just use a guitar!
Either way: music is not just about sound quality. Acoustic instruments still have a particular immediateness about them; even the best digital emulations can't really hold up in this regard. Anything you do to an acoustic instrument will in cause a sound, giving unlimited musical opportunities. If you thus create better music, even if the sound quality is horrible, it's arguably preferrable to a bad performance on a high-end instrument (or, even worse, an expressionless programmed MIDI track through even the best sampled instrument).