OK, I'm not a Z9 owner, but I think I may know what the problem is. I don't think it has anything to do with your Z9 either. I'm assuming that you have component cables running to one of the several component inputs that are on the rear of your TV set. Chances are that you have it plugged into the component input that supports only
progressive component signals. The PS2 only plays a handful of its game library in progressive, unlike the Xbox which nearly all are progressive. The PS2, though, can play DVDs in progressive. So you may have everything setup correctly on the PS2 and Z9, the games you've chose to play don't support progressive. I may be wrong, but the fact that you can see progressive DVD but not gaming leads me to this conclusion. Here's a list of PS2 games that support 480p (the maximum resolution the console is capable of). You may also want to verifiy that progressive scan (for games) is turned on in the PS2 menu.
http://www.hdtvarcade.com/ps2list.htm
If you want to impress your friends with HD-gaming, get an Xbox!
EDIT: You may have to plug your PS2 into a component input on the TV that supports interlaced signals to access the PS2 menu. You have to do the same thing with the Xbox, but I know for a fact that that you can activate a progressive menu on the Xbox with a certain button combination. If you happen to have a GameCube, holding "B" on one of the controllers when powering up the game will start the game in progressive (again, only if the game supports it).