I do not know if this is relevant anymore, but I am having the same issues and am still playing around with it. I have had some success, which I wish to share.
First of all, since I am trying to achieve the same thing I knew right away what he is trying to achieve. He is trying to make a multi-boot usb stick for installing several Linux distros.
To integrate each OS and make updates easier it thus makes sense to try and load the boot loader of each distro, as if it was alone on the filesystem. Thus he tried to chainload their isolinux setup (that comes with the .iso). I too tried this, but I have not had any luck yet.
The only workaround I found (only tested with netboot iso) is to use the method of just loading the new configuration (in this case /path/to/distro/isolinux.cfg), using CONFIG statement. Only, in this case that got some errors so I tried its child config "menu.cfg". That skipped the Ubuntu boot menu, but it did load the Ubuntu installer successfully.
Remember that you also need to specify the new home either on the CONFIG line or using APPEND bellow.
Lastly some comments on the question. When it comes to PATH (Z:) is irrelevant here, since when you are actually running from the USB stick you are not using Windows and UNIX rules applies. So only enter the path the UNIX way /xxx/zzz. For example "I think Syslinux recognizes Z:\ as root directory /" makes no sense, because /=root, in Windows (drive letter+)\ (\=root).
Since you do have the exact same goal and issues as myself I will share any progress I have in the future.
EDIT: Here is the answer that most probably will solve everything.
The simple fact you have to remember is that the COM32 files is incompatible between different versions of SYSLINUX/ISOLINUX. SYSLINUX & ISOLINUX themselves are compatible with each others.
On the Ubuntu Netboot.iso only one COM32 file is used, vesamenu.c32. I simply replaced this with the one from my main syslinux install on the usb (/boot/syslinux/vesamenu.c32).
Then simply point your boot menu to the file that would otherwise start the OS install (/boot/ubuntu/isolinux.cfg). Use CONFIG for this & it will just magically work. No more "Could not load vesamenu.c32".