The fact that you now own the nicest home on your street is ok while you are happily living there, but one day when you decide you want to move, this can potentially harm your resale value when you come to sell. Why?
Well, because you now live in the nicest, most expensive house in the street, your home's value is at the very top of your neighbourhoods price range. So anyone wanting to move into your street, can pay a lesser amount for perhaps a smaller not so upgraded house. Not everyone wants to be the king of the castle.
If the home buyer is qualified to buy your home at its higher price, they would be smart to search for a similar priced home in a neighbourhood where you are surrounded by homes that are of a similar value, size etc or perhaps they can find a neighbourhood where they are surounded by bigger more expensive houses, therefore potentially increasing their resale value when they come to sell.
Bottom line, most times its better to be the smaller more modest home in a neighbourhood full of nicer, larger homes; for resale purposes.