Well as far as that diverter block is concerned, if the loader works, then the spool is probably turned the right way. It should turn about 1/3 of turn either way and then stop. In one direction the loader will work. In the other direction it won't, only the lift and remote will work. The spool should be against the the stop, and not left somewhere between.
About the two lines to the loader valve, that's "A" problem, but in this case not "THE" problem. As has been stated earlier, more than likely the lift cylinder seals are leaking internally. There are other possibilities of course, but those seals are the most common cause of that.
Although, with only two lines from the diverter valve, that means the oil returning from the loader cylinders during their operation has no path to sump (which it SHOULD have if the valve were plumbed correctly), it's being forced back into the lift system which I would think would help raise it back up when it drops.
If you raise the lift and shut the tractor off does the lift drop down on its own at a fast rate? I'm guessing it does.