Actually, many kit lenses have fairly decent optics -- not great, but decent. They'll be good enough that, unless you're looking for it, you won't really notice the distortion or minor defects.
Where kit lenses do have problems, though, are usually in the details. The main one is construction quality -- the 18-55 that came with my Nikon D40 is all plastic, and whenever I hold it, I feel like it might fall apart if I'm too rough with it. My other (more expensive) lenses have more metal parts, more solid barrels, and in general can take more abuse. Very high end lenses often come encased in a metal barrel which entirely separates the inner workings from the case.
In addition, many kit lenses have rotating front elements, which makes it harder to use them with certain filters (polarizers, graduated ND, etc. -- anything where orientation matters). This doesn't mean you can't use a polarizer on them, just that it's more of a pain to deal with. This is a very common rule, I think, with more expensive equipment: it makes it easier to do what you want.
There are other details, too -- my Nikon kit lens has no ability to adjust the focus on the fly (without changing to manual focus).
But all of that said, optically, I'm very happy with it. I use my other lenses because I prefer wild and wacky focal lengths, not because the optical quality is significantly different.
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