I only leave a review once I finished reading the entire novel, so the lowest I'd given is 3.5 (it's fairly high because I won't even continue reading a book if I don't like it in the first place). For the novels that aren't to my liking, I just leave them alone.
For the star rating, I think it's best to be honest, then include in the review why it's rated as __ stars. Also, when reviewing, I think it's better to list out the good and the bad points (for the new readers' reference & for the author as well). I mean, no matter how "bad" a book is to some people, there are others who will probably like that book.