Thats the whole point, everything works at elevation 0 but when you add the Z dimension to sprites the rendering stops working correctly (when zoomed).
It almost seems like its being offset or something? like this (where the black is the screen, and red is the Z rendered screen):
<img src="http://dl.dropbox.com/u/1024727/thanksforthereply.PNG">
<img src="http://dl.dropbox.com/u/1024727/zoomedthing.PNG">
but i could be wrong, lol.