We use a dropdown form “Named Monitoring Locations” to provide standard location names for regular data entry sites. If we delete a site from this dropdown list which is no longer used will the Epicollect5 data associated with this named site also be lost from our database?
Hi, from the User Guide at Edit Possible Answers | Epicollect5 Data Collection User Guide
If you delete a possible answer and you have some entries already collected, you will lose only the responses matching the possible answer you are deleting.
For example, if you have a question with YES and NO as possible answers, you collected some data and later you decided to delete the NO possible answer, all your previous NO responses will be empty but you still have all your YES responses
In your case, your site response will be an empty value, but the entries are not deleted.
We always recommend a backup before editing existing projects though 
OK so to confirm… If we remove a dropdown menu list item (in our usage a site location) eg “2112 N Canyon Ck 100 m U/S Mt Rd” from the dropdown. The field data entered for this location 2112 N Canyon Ck 100 m U/S Mt Rd site will remain in the database?
That is correct.
You can easily try this out by cloning your project and importing a few entries to the clone. Then you delete the dropdown option and check your data for consistency. If everything is ok, you can perform the operation on the original project.