My interpretation of the quote:
"From each according to his abilities, to each according to his needs."
I am a realist so I don't like to think in terms of abstract. Many of these propositions that I will state are backed by economics (I'm a business major so this is forced to occur for me, haha) and social sciences. Also, I like to try to place my theories in a framework that is similar to a currency (money) system. You can consider the society using the modern day currencies if you wanted to, or a point-based system. I am also forced to summarize my beliefs into an extremely basic level, so you may not find every solution. However, I will try my best. Here we go!
From each according to his abilities
: From every man in the given society there is required a certain amount of work according to his abilities. People who have no arms in this case will obviously not be expected to work the same way as any others. These people would get compensation of a sort in terms of work. People who are naturally brilliant will be expected to work more. Simple. However, out of the notion of freedom, the talented person doesn't necessarily have to work hard either. We don't want an authoritarian regime that forces the citizens to work. That would be ...umm.... mean.
To each according to his needs
: Every individual gets his needs. This is quite simple to define for me, but I can see where all the contest flares up. For me, needs is defined as the natural and genuine need of humans to exist in a society. It would consist of the obvious everyday things that people desire and need for survival (which consist mostly of inferior goods but also some normal goods). That person with asthma will get his treatment and the person with the broken legs will get a wheelchair. Medical care will be covered for all, along with education, shelter, food, etc. Therefore, the entire argument of luxuries is negated because nobody requires luxuries to continue living.
However, this does not mean that luxuries will not exist. People want luxuries. Maybe not everybody, but definately people. How do you get these luxuries (or marginal benefits of living in addition to the simple "needs" of survival?) in a communist society? This is also simple. We take the most major trait of Socialism ("from each according to his abilities, to each according to his work") and mix it to the "from each according to his abilities, for each according to his needs" principle of Communism. Anybody who sincerily worked beyond his abilities (like the naturally brilliant person in my ealier example) will get, as he deserves, the marginal benefits for his additional labor. He can then get the luxuries that he wants. The person with the broken arm is also free to work beyond his abilities and reap the same rewards. These people who work more than what is demanded of them by society will also help the population as a whole, since their additional wealth will decrease their needs for the inferior goods (which will most likely be replaced by the luxuries. ex. traveling by air instead of bus.). Due to the giffen effect, these surplus of inferior goods caused by reduction in demand will be allocated to others in society, thereby moderately retaining efficiency.
Surgeons will make more than a truck driver in a communist society because medical degrees are a lot rarer and harder to earn. Because it is harder to earn, it is beyond the demands of the abilities of any normal person. Naturally, the surgeon will be able to get more beyond his needs.
The question now is, what about those that still won't work? What about those people in society that are simply satisfied with their "needs" to survive? Society, after all, will be forced to provide for them even if they don't work. Correct in a sense. Society must always provide the needs by any common man the opportunity to succeed. Employment oppotunities, medical care, etc., must always be provided so that men will be able to work. Equality of opportunity is the most important thing in socialism, which capitalism lacks (whether one finds work or not is based quite a bit on luck, especially if you're a worker). However, I doubt that there will be a lack of complaint by workers if the entire needs package is offered to a non-working man. Legislation will be provided to suit this problem without doubt. Employment can be forced through law to people unemployed for over a certain amount of time period to ensure that cyclical unemployment won't be permanent. From employment, the entire needs package will be provided, even if he doesn't perform to his full abilities.
The next corresponding question is, how is the law enforced if there is a dissolution of the state? Well, I'm tired of typing now and don't think that any are even reading up to this point. So ya, hope my analysis is acceptable.