will System.debug, if left in production, affect performance ?

Code executed, including System.Debug and System.assert (and their variants) have the following effects:

1) They increase debug log sizes.
2) They increase script execution time (but insignificantly).
3) They count against governor limits.

The final bullet point is your most troubling concern. A loop against 1000 records with 10 debug statements will have a total of 10,000 extra script statements than the one without.

The salesforce.com best practices state that you should always remove or comment debug statements for production code