[hunter2_]

I hear no difference between undithered 16 bit and anything "better" (e.g. dithered 16 bit, or more bits) and anyone who claims they do should be highly scrutinized, when we're talking about a system (media, DAC, amplification, transducer, human) playing a mastered recording at a moderate volume setting. But I certainly hear the difference (as quantization artifacts) when cranking the volume up to extremely high levels when the source material is extremely quiet, like during a fade out, a reverb tail, or just something not properly mastered to use the full range; setting the volume to something that would totally clip the amp, blow the speakers, or deafen me if it weren't a very quiet part of the recording.

Dithering (or more bits) does solve for this. A fade out of the song also lowers the captured noise floor, but the dither function keeps going.

It's akin to noticing occasional posterization (banding) in very dark scenes if your TV isn't totally crushing the blacks. With a higher than recommended black level, you will see this artifact, because perceptual video codecs destroy (for efficiency purposes) the visual dither that would otherwise soften the bands of dark color into a nice grainy halftone sort of thing which would be much less offensive.