Not just that Y.exe did not 'Execute' after the 1.7 updating has finished, wyUpdate deleted the Z.dll (which was installed during the 1.6 update and not included in 1.7 update).
In the step-by-step walkthrough we tell you to include every single file for every single version of your software. Let wyBuild compare the versions. It's smart enough to know what's new, what needs to be patches, and what needs to be deleted.
As you have it now, Z.dll is in one release and not in the next. So wyBuild reads this as "they want to delete Z.dll because it's no longer part of their software".
For the issue of Y.exe not executing [...]
The problem here is there's a bug in wyBuild. If an exe file is unchanged from version 1.6 to 1.7 of your app then the file won't be executed. We're fixing this for wyBuild 2.6.15.
In the meantime you can include the Y.exe in the temporary folder and it will be downloaded and executed as part of the update.