This is not related to the file extension: the Level9 interpreter doesn’t use the file extension to decide anything other than to find graphics files if they are separate from the main game file.
SNA files are Spectrum memory snapshots, basically just a dump of the 48k Spectrum memory. Level9 can search such files and find the Level9 game and graphics data in them. But Z80 files are compressed, and Level9 doesn’t know how to uncompress them, so it can’t find the game data.
There are various tools you can use to convert Z80 to SNA, or search around on the Internet and you can find Level9 games in various formats that will work. The help file included with Level9 has some more detail on this: see the section “Supported Formats”.
There is also a tool L9Cut (https://www.ifarchive.org/indexes/if-archiveXlevel9Xtools.html) that can extract the Level9 game data from various formats, although there’s only an MS-DOS executable supplied, which isn’t much use these days. I’ll try to remember to build a Windows console executable for that this weekend.
Yes, the line drawn images from the early games are “of their time”. The bitmap images from the later games are better, but not Magnetic Scrolls good. I always played the games with the graphics off, anyway.