[sdiy] reducing amount of bits

[MED]

Hi; I've been doing some thinking about a "grungifying" box. Basically, it'd 
take an input, compress it, feed it to an n-bit ADC, DAC it and un-compress 
(expand) it. The digital side will have bits dropped out of its output until 
it's at 1-bit, sweepable with a voltage. I'm thinking the ADC and DAC should 
have sweepable samplerates from somewhere above the audio range to somewhere 
in the middle :) But that's a simple oscillator; the question I have is based 
on my understanding of ADCs and DACs.
Okay, if i have a 5V p-p signal centered at 2.5v and I feed it into the ADC 
(set to have 5v max), using all of its bits will work. But if I cut out, say, 
the bottom half, will I be left with a 2.5V max positive half-wave, then a 
flatline for half a cycle, and then another positive halfwave? Or do ADCs 
translate the information so that dropping out bits leads to less and less 
*detail* but still full amplitude?
Or is it that some ADCs do it one way and others do it another?
I don't know any of the keywords for adc/dac selection but I could've sworn 
someone had just done this grungifier project recently...

-MED, expecting a "DUH!" moment soon