Les
I believe that your contention about the physical environment is absolute true. A quality instructor can rise above most any situation if they are prepared and dedicated to providing quality learning opportunities.
The finest environment staffed by an unqualified instructor will only be a fine environment, not a focal point for learning.
The key issue of the physical environment is for you as the instructor to see the environment through the eyes of the students so you can see how you might improve the physical setting so it is not a distraction. This might mean a coat of paint, clearing clutter up or rearranging the lab stations. These simple things can keep the physical environment in a secondary setting rather than letting it become a source of student complaints. I have taught in some real difficult physical settings, but by helping the students to make the learning site their own and doing some basic maintenance I was able to have very successful classes. It as you said quality instructors with quality attitudes make the difference.
Gary