Sounds like a bad solder connection around the Z axis encoder connector. And maybe the encoder input is inverted from the original, this also could be a parameter setting. That may be why it is slamming into the prop board. Really sounds like the encoder and motor are not in agreement as to direction.
Now what I would do is remove the entire control system and replace it with a Centroid or Dynomotion system. But I have a very low tolerance for antique controls.