I would say that this isn't true -- many many great performers have risen above mediocre material, i think there's a long history of stars who can spin straw into gold.
But it's also very hard for good material to rise above a mediocre performer. This is what happens all over the place when amateur companies put on a bad production of a good musical and the audience thinks the show isn't good. The material actually isn't mediocre, but it can't rise above the limits of the performers doing it. This is why I'm always hesitant to bring friends who don't know a musical to a production of it if I haven't seen it first. At least half the time it doesn't do the show or score justice at all. But a great song can be done badly by a mediocre performer, and a mediocre song can become gold when done by a great performer.
And I think that's possibly happening in SLIH -- I think the material given to Sugar is generally good, and a performer who has effortless star quality and can act the role and bring star quality to it would be making a stronger case for the material than what we're seeing in SLIH.