You seem to have a lot going on here, and a lot being thrown at you. Some of which I agree with, some not so much. For one thing, while the lift cylinder piston seals might be a problem with lifting capacity or function, but hard to believe that's affecting the "not" lowering. If you decide to go into that you can see the pump and intake tubing clearly with the lift cover off. Or you can always pull the pump. You might also try an old International trick and over fill the housing by about two or three gallons any see what that does. If it helps, then yes, you may well have a pickup tube issue. As for using 3/8 hose for the loader, I've installed 3/8 hoses on any number of eight and nine GPM systems for years without issue. The right way to go is to find out what you have pump wise with a flow meter. That will tell you more than a number of people throwing guesses at you.