Proper pronunciation and proper distinguishing of letters and vowels is halakha.
How must one enunciate? He must be careful not to pronounce [a letter with] a strong dagesh as if there were no dagesh, or [a letter with] no dagesh as if there were one. Nor should one pronounce the silent sheva or silence the pronounced sheva. Hil. Kriath Shema' 2:9
There are six factors that prevent [a priest] from reciting the priestly blessings: [an inability] to pronounce [the blessings properly],...
[An inability] to pronounce [the blessings properly]: What is implied? Those who cannot articulate the letters properly - e.g., those who read an aleph as an ayin and an ayin as an aleph, or who pronounce shibbolet as sibbolet and the like - should not recite the priestly blessings. Hil. Tefilah 15:1
The person reading the Torah is not allowed to begin reading until the congregation ceases responding "Amen." If one erred while reading, even regarding the careful pronunciation of one letter, [the reader] is forced to repeat [the reading] until he reads it correctly. Id. 12:6
Similarly, the inarticulate who pronounce an alef as an ayin or an ayin as an alef or one who cannot articulate the letters in the proper manner should not be appointed as the leader of a congregation. Id. 8:12
Thus any exacerbation of the problem of inarticulation would be halakhicaly problematic. However, it would be impractical to enforce these halakhoth in today's world where 99%+ Jews fall into the category of the inarticulate. Many authorities, Such as Rav. Kook in Orah Mishpat 16-17, permit one to use any pronunciation they were raised with.
As for the first part of your question, by my count, there are 29 consonant phonemes in the full range of proper hebrew. If you were to not use the double pronunciation for resh, that would bring it down to 28. Except for kaf, at least one community merges all the bgdkft letters. If one were to do this, that would bring the count down to 23. If you were to merge ayin and aleph that would it down to 22. Qaf merges in a variety of ways in different pronunciations, but that would bring it down to 21. Merging heth and khaf brings it down to 20, and merging teth and taw brings it down to 19. Corrupting ssadhi to a combination of taw and sin brings it down to 18. If you want to bring Ephraim into this, that brings it down to only 17. This would be the minimum number theoretically possible. The modern pronunciation merges resh and ghimmel as well as waw and veth, however, you could not merge these and the bgdkft letters simultaneously as these are fricatives and the merged bgdkft phonemes are always plosive. Vowels gets more complicated, but pretty much all of them have been merged or corrupted in one way or another.
This is a chart that I have put together of all the phonemes with a current live tradition for reference.