I thought the number of bits refers to the number of variations in volume from silence to maximum. 16-bit providing 65536 steps and 8-bit providing only 256. I would think it would be difficult to hear the volume change on an 8-bit tone when moving up 1 step, from say 128 to 129. It would be like a TV having 256 volume positions. I've come across some annoying TV's with only about 16 volume positions. Increase a notch and it's too loud and decrease and it's too quiet. I don't notice much difference changing my Winamp to 8-bit MP3 decode.
So it begs the question; would reducing the audio bits provide more space to increase sound quality on lower bitrates?
Ross.