I do MIDI volume automation all the time and it does in fact work. I like to get the un-rendered dynamics as close as possible, then do the final automation tweaks on the audio track after the bounce.
However, I have noticed that how well CC7 automation works depends on the synthesizer. How much effect it has on an instrument's volume is not standardized, and is left up to the instrument designer. Some (e.g. Kontakt) let you scale CC7's effect. Some make you jump through hoops to get it to work at all - Trilian, for example ignores CC7 until you explicitly enable host automation and then do a MIDI Learn.
Not being a z3ta user, I don't know if it has issues with volume automation. What happens if you substitute another synth for testing?