Hi there,
The modulation is working fine but when I record a midi note (or draw a note in the piano roll), the modulation is gone when playing the host!
The bug was reported by another user (in KVR). The steps to reproduce the bug are:
 
1. Start Z3ta+2 inside a host and initialize it.
2. Choose any simple wave in OSC1
3. Choose simple LFO1 wave with Sync:1, Phase: 0 deg
4. In the modulation matrix, set the Source to LFO1 and the Destination to All Oscillators/WaveShaper/Bit Reduction
5. Play a note in your keys. You can hear the modulation.
6. Add a midi clip containing a long midi note
7. Play the host. You won't able to hear the modulation :-(
 
Thanks, 
 

Something weird is going on there, for sure.  I don't have the 2.1 update installed.  Wonder if that makes a difference.  If I reinitialized, then played a MIDI note (from an external keyboard) before Sonar reached the long-note MIDI clip, the modulation remained.  This one warrants further study ...

I have the 2.1 version which I can reproduce the bug in it.
 
It works fine if I don't record any midi note, so as soon as I start recording midi, the modulation or the automation of waveshaping parameters disappears. It is a bug and a main one if I can say that. Cakewalk should fix it, there is no alternative to it. It makes me not really using the synth, instead I either use Z3ta+1 or NI Massive for similar results.
 
Pity, it is a great synth with so much effort has put into it.