The experience of socialist nations suggests that we must approach the difficult question of inequality under socialism with more care than Marx, Engels, Lenin, etc. did.
(1) In the then socialist nations like the USSR, inequality between the nomenklatura and the masses was _much_ smaller than that between the ruling class and the working class in capitalist ones. Nevertheless, the socialist masses (who were economically better off under socialism than they are now under capitalism) resented the perks that the bureaucratic elite enjoyed & became cynical about "Marxism" reduced to the official ideology, while a good number of the elite eventually began to think that their own interests would be better served if they restored private property.
(2) At the same time, those who had university education and yet were not part of the elite -- middle strata? -- in the then socialist nations envied their capitalist counterparts who seemed to have more consumer goods with better quality than they did (those middle-strata socialist citizens were not paying attention to the miserable conditions of struggling artists with temp jobs, overworked teachers in urban public schools, adjunct gypsy scholars with no job security, etc.). No socialist nation could offer its doctors, lawyers, scientists, etc. the kind of wage premiums that would make their conditions even remotely comparable to those enjoyed by many of their counterparts in rich capitalist nations. Therefore a good number of them became liberal "dissidents" eventually (if they couldn't emigrate, that is).
In short, inequality in the then socialist nations was too large to make the masses content but too small to make their doctors, lawyers, scientists, etc. happy with socialism.
That said, the need for high productivity & material abundance that Justin raised is real, not to be dismissed simply on the ethical & political grounds. The rates of increases in labor productivity and economic growth began to fall in the mid-1970s in the USSR, laying the groundwork for its eventually dissolution. The West also experienced comparable difficulties in the 70s, but its ruling class overcame them by neoliberalism (= beating down the working class & restoring the rate of profit). Gorbachev's perestroika was a socialist equivalent of neoliberalism, an attempt to restore the growth rate of productivity. It failed politically & economically, however, since socialism & neoliberalism didn't mix. The elite began to think, if socialist neoliberalism, why not capitalism? To survive, the USSR needed a politico-economic solution other than socialist neoliberalism, but neither its elite nor its middle strata nor its masses could find one in time.
Yoshie