Actually, the equation is not correct. The correct determination of measurement uncertainty is one of the most overlooked aspects of data analysis. For a detailed reference I suggest the ASME PTC 19.1-1998. It is the supplement to the American Society of Mechanical Engineers Performance Test Codes. The standard is labled "Test Uncertainty". Also consider another "benchmark reference", the book "Experimentation and Uncertainty Analysis for Engineers" by Coleman and Steele (1989 Wiley&Sons).
While the equation you reference may provide a "first-order estimate", it fails to consider the most basic fact that the uncertainty you want is actually classified as a systematic uncertainty (as opposed to a random uncertainty). Systematic uncertainties are expressed in terms of confidence level (3-sigma, 6-sigma) and can be loosely expressed as follows:
U(95) = 2 * square root of [(B/2)^2 + Sxbar^2]
where
U(95) is the systematic uncertainty to a 95% confidence level
Sxbar is the standard deviation divided by the square root of the number of samples
B is the square root of the sum of the systematic errors times the sensitivities of each measurement. For example:
B = sqrt [ (theta1*b1)^2 + ... + (thetan*bn)^2]
where b1, b2,..., bn are the uncertainties of your individual components (offset, drift, quantization) and, for your example, all of the thetas are = 1.
(I omitted the noise error term as it is classified as a "random" uncertainty - and the effects actually are introduced in the Sxbar term.)
Now, the theta term allows the equation to be appplied to a process where the variables are related. An example of this would be the uncertainty of a compressor efficiency that is based upon the measurements of flow, pressure, and temperature. For that process, the theta values are dependant upon the fact that the pressure and temperature are related according to phyisical laws. The theta values could vary by as much as an order of magnitude - giving much higher "weight" to the error of one sensor versus the other. There would also be "cross terms" such as :
theta1*b1*theta2*b2 - and on, and on, and on ...
Sorry about the length of my response (I AM a rocket scientist you know); however, I wanted to let you know that your question (and my answer) is only the tip of a broad topic that is quite often ignored.