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Let's see if I have this straight

1) Only losses affect troop quality.  Troop losses and losing cities affect national morale
2) National morale is fluid up or down depending on cities lost or taken but is permanently lost due to troop losses. Morale is also not permanently lost due to food shortages as the British in the original question were wavering and are now strong.
3) You are not notified of sunk ships they just disappear (in my case i built two uboats and somehow lost two)

1) If you loose one exhaustion level which is the bar on the national status screen all your units drop one quality level and all your HQ loose 1 OP. Furthermore when you loose one of your original units and rebuilt it then it will have a considerably lower quality. In addition if a unit looses twice its maximum SP it will drop a level in quality.

Loosing an exhaustion level cost you a decrease of 20 % in national morale.

Ship losses, food shortages, exhaustion level and troop losses, city gain/loss, conquest of allies/opponents all have influence on national morale.

2) Consider the morale level a percentage which can go up or down for various reasons. If it hits "0" and stays there for a full turn that country will surrender.

With "permanent" effect it means in your situation with Britain that if you loose say 10 morale of food shortage in one turn you can never get that 10 morale back by making up the shortage in a later turn. But you can certainly gain 10 morale back by other means so your max morale is not lowered by 10 but will still be a theoretical 100.

3) That's a bug which should be corrected in patch 1.2. I guess its because naval combat in 1.1 is happening simultaneous where a "sunk" ship could be engaged in several combat rounds.

Regarding the drop in quality with replacements, does this go on forever? For example if my A quality corp takes enough replacements to drop to B quality will it then drop to C quality after taking enough replacement again? If so is it twice the original strength (48 replacement for a 24 point corp) or twice the total replacemetns already taken (96 in this case)?

Frank will have to answer that one - i have no clue but i guess the answer is yes it can go on for ever.

But i think that is quite theoretical because your overall losses would otherwise be prohibitive and you will suffer odd effects from exhaustion levels as well.

ORIGINAL: hjaco

Frank will have to answer that one - i have no clue but i guess the answer is yes it can go on for ever.

But i think that is quite theoretical because your overall losses would otherwise be prohibitive and you will suffer odd effects from exhaustion levels as well.

I don't know. If I'm the CP and going after France first I use the same corp for many attacks. If the war drug on until 1919 I could see some A quality corp taking 100 replacements over the course of the game.

Yes but if we are talking about a handful corps then it doesn't matter in the big picture. And if you loose that much on the majority of corps in the field chances are you wont make it till 1919 [;)]

Regarding the drop in quality with replacements, does this go on forever? For example if my A quality corp takes enough replacements to drop to B quality will it then drop to C quality after taking enough replacement again? If so is it twice the original strength (48 replacement for a 24 point corp) or twice the total replacemetns already taken (96 in this case)?

Each corps has a "replacement counter".  Once it reaches the maximum strength the unit quality is downgraded and the counter is reset to zero.  So an A quality 24 strength corps will be downgraded to B after taking on 48 replacements, down to C after its taken on another 48 replacements and so on.

1) Only losses affect troop quality.  Troop losses and losing cities affect national morale

Sort of, but to be exact, replacements affect troop quality, not actual losses.  Just the replacing of them. 

2) National morale is fluid up or down depending on cities lost or taken but is permanently lost due to troop losses. Morale is also not permanently lost due to food shortages as the British in the original question were wavering and are now strong.

Food shortages do indeed cause morale to be lost.  As for the rise in British morale, did a country on the other side surrendere perhaps?

3) You are not notified of sunk ships they just disappear (in my case i built two uboats and somehow lost two)

Right, this was because when you see the naval results the whole naval phase is in the past.  So "Sunk" ships could be in one action after the other.  I thought it was confusing so I took out the sunk message.    In 1.2 what I did was added some information to the squadrons listed in the naval battle display.

So you might see a DN's name and next to it see something like "12/24".  This means that that squadron has a protection value of 24 but has taken 12 damage in total as of the END of this naval phase. 

Thanks.

As for the rise in British morale, did a country on the other side surrendere perhaps?

 
The Brits went on the offensive and retook some cities in Belgium and also Skopje so I imagine that is what happened.  Nobody on the CP has surrendered yet, but Bulgaria is doomed this turn