Use a X3 camera for a firmware downgrade of both the aircraft and the controller, that way you don't run the risk of bricking a camera.
Utilize Firmware v1.8.x.x for the aircraft, the controller should be downgraded as well to 1.6.0 to match.
Again, only use a X3 camera for the downgrade, but after that the Z3 should work just fine. The camera firmware you have is the latest.
I own 3 Inspire 1, 2 V1 and 1 V2/Pro/RAW. I also own all 4 cameras, the X3/Z3/X5 and X5R. For reference, the latest camera firmware is best for the cameras, but for the aircraft v1.8.x.x (or version 1.9.x.x for the Z3) is best along with v1.6.0 for the controller.
You could have a problem with the camera itself, or, more than likely, it is a firmware issue. There could also be an issue with the aircraft.
Before even doing any of the above, have you tried to manually set a channel? Sometimes the latest firmware "freaks out" and doesn't chose a clear channel and get tons of interference, regardless of the number of bars shown.
I would get everything set up, hover the aircraft and go through and chose a channel manually, say Channel 20. See if it works clear and without issue. Try that with each channel and if NONE of them work, then I would try the firmware downgrade.
Let us know how it works.