I assume that everything, track power, accessories, and the legacy are using the same common ground? Or do you bring the legacy ground(s) from the upper and lower level back to the transformer. If it were me, I would experiment. I would run a temporary wire between the outside rail on the top loop (the one not working) to the outer rail of the lower one, and see if you see the signal. Another option would be to run a temporary wire from the upper loop to the U on the ZW, and see if that helps. I don't know how, but it almost sounds like the ground from the upper level for legacy is being lost (I know, captain obvious).Another option is instead of running a wire between the U of the ZW to the U of the Z, run a wire from the common ground bus (I assume you are using a common ground bus with the track and accessories and legacy return) to the Z U terminal and see what happens.
The only other thing I can think of is the Z somehow through its ground plug when the two U posts are connected is putting noise into the house ground that is interfering enough with the legacy signal that goes over the house ground that it is making the signal too weak on the upper loop (I am not an engineer, far from it, and if GRJ laughs at this, well, I prob deserve it, my dad is probably spinning in his grave)