Does chopping steak negate the benefit of using better meat?

If it's a properly done cheese steak, and it's not sliced in the same direction as the grain of the meat, he's probably right.

It's quite possible that a cheaper cut of meat would have a "beefier" flavor, just because many of the tougher cuts of meat tend to be more flavorful, partially because of the fat content.

All of that being said, it's really a matter of personal preference. Some of of the places near me use the equivalent of "steak-ums" and not everyone's a fan of the texture. If you want to find out if it's worth it for you, get a few friends together, order two subs with the same toppings, one with the upgraded meat, one without, and do a taste test. (and if you can, get one person to order it and label the packages, then hand off to someone else to portion it out, so it's at least closer to double blind, particularly if they use two different labeling schemes)

update : Unlike chicken, beef doesn't have the obvious distinctions between light & dark meat; the normal rule is that the further from the hoof and horn it is, the less that muscle group has worked, and thus the more tender it is ... but as with chicken meat, it's the working muscles that tend to be more flavorful (although tougher cuts). And as with chicken, it's the fattier meat that has more flavor.

Some cuts of beef have the grain run in one direction -- because of this, we can cut the meat across the grain, which tenderizes it. It can be done before cooking, as with philly cheesesteaks, or afterwards, as is done with fajitas. Common cuts used for this sort of treatment are flank steak and skirt steak, which may be difficult to find in all grocery stores as so much seems to be diverted for restaurants.

Besides cutting, other aspects of processing (eg, aging) can affect how 'beefy' the meat is.

I think this is purely a matter of taste. Different cuts of meat do have different flavors and textures. Filet generally has very little fat or connective tissue in it, so it's very tender but loses some of the beefier flavors that you'll find in other cuts. A strip steak has a lot of fat around the outside and picks up more flavor. Short ribs are a very tough piece of meat that need to be cooked for long enough to break down the connective tissue running through the meat so that they are soft enough to eat (why they're usually braised), but are very flavorful.

So the question is two fold, what texture do you want and how do you like your flavor. I would think that for a Philly Cheese Steak, it would make little difference as the thin slicing makes both meats tender, and the cheaper meat may actually have a stronger flavor. However, for a steak sandwich, with large chunks of meat, the filet may be easier to eat as you can more easily bite through the meat. On the other hand, you're masking the flavor of the meat with the rest of the sandwich, so you might want a beefier flavor.

Cooking method will also have some effect on this. If the steak is cooked well done, then I think the cheaper piece of meat is ok. Filet or other nicer steaks lose a lot of their flavor and nice texture when cooked well done. Cheaper meat is sliced thin and cooked well done to break down any connective tissue quickly and make a more tender piece of meat. If the meat comes out pink though, this really shouldn't make much difference.

Additionally, as food is fairly subjective, some people do or don't like the different flavors and textures. One cut may be too beefy or too grisly or vice versa. If you think it tastes better, who cares what your friends think!