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Yes and no. Oversampling can reduce noise, but it can increase linearity only by a rather small amount. Only one-bit ADC, as used in most simple SD-converters, don't suffer from ADC linearity errors. Multibit-oversampling designs, e.g. most recent audio ADC, have to use sophisticated correction circuits to overcome the problem.actually a method to obtain higher resolution using a low resolution ADC
Averaging or "decimation" is in fact required with many uP to get more than 7 or 8 effective bits from a "10 Bit" on-chip ADC. When suggested by vendors as Atmel, it sounds in my ears like "it's not a bug, it'a a feature".This method is best when you use an ADC with a microcontroller.