Wrong way to think about the problem. Lowering bits does not mean lowering model capacity. Its the opposite in fact - it allows you to you to fit more parameters.
Well, yes within your constraints. In the end, you are choosing between two aspects. Same as with screens: you could have resolution (1024x768!!) or color (16bits!).
kind of. if we get computers that are 1000x faster, it just becomes a tradeoff between higher precision or 1000x more parameters. the reason resolution has stopped being pushed is that our eyes have severe diminishing returns. it's not yet known whether brains do.
Edit: the term I could not remember is tradeoff.