Other than possibly mis-placed hydraulic hoses, it sounds like there may be more issues than just the engine. If I get a chance tonight I'll take some pictures of the hose routing on mine from the loader to the 3 ph so you can compare that to yours.
It might be the return hose from the loader plumbed into the inlet of the 3 ph, which would give the 3 ph a shot of oil every time the loader moved. The fact that it works better at high rpm and not at idle is odd, if the cylinder was messed up it shouldn't hold it's position after the rpm came back down.
It might be worth your while to take a close look at the linkage from the position control lever to the 3 ph valve, as well as the feedback linkage from the lift arms to the valve.
Sean