We should develop on slow boxen because it forces us to optimize early.
Randall Hyde points out in The Fallacy of Premature Optimization, there are plenty of misconceptions around the Hoare quote:
We should forget about small efficiencies, say about 97% of the time: premature optimization is the root of all evil.
In particular, even though machines these days scream compared with those in Hoare's day, it doesn't mean "optimization should be avoided." So does my respected colleague have a point when he suggests that we should develop on boxes of modest tempo? The idea is that performance bottlenecks are more irritating on a slow box and so they are likely to receive attention.
Slow computers are not going to help you find your performance problems.
If your test data is only a few hundred rows in a table your db will cache it all and you'll never find badly written queries or bad table/index design. If your server application is not multi-threaded server you will not find that out until you stress test it with 500 users. Or if the app bottlenecks on bandwidth.
Optimization is "A Good Thing" but as I say to new developers who have all sorts of ideas about how to do it better 'I don't care how quickly you give me the wrong answer'. Get it right first, then make it faster when you find a bottleneck. An experienced programmer is going to design and build it reasonably well to start with.
If performance is really critical (real time? millisecond-transactions?) then you need to design and implement a set of benchmarks and tools to scientifically prove to yourselves that your changes are making it faster. There are way too many variables out there that affect performance.
Plus there's the classic programmer excuse they will bring out - 'but it's running slow because we have deliberately picked slow computers, it will run much faster when we deploy it.'
If your colleague thinks its important give him a slow computer and put him in charge of 'performance' :-)