So basically, they used one of the 68k RAM chip as Z80 RAM in SMS compatibility mode, not the original Z80 RAM as you would logically think they did
The odd thing is that RAM /CE is generated by the VDP, which means this chip is still doing Z80 address decoding in SMS mode
As far as I understand it, in SMS mode Z80 address bus is directly connected to 68k address bus (for cartridge port access): ZA14-ZA15 are used for address decoding ($C000-$FFFF access are mapped to 8k mirrored RAM) and ZA0-ZA12 are used to address the RAM chip. RAM A13 obviously needs to be forced for mirrored RAM access, which is why IA14 is controlled by the ASIC.
But the thing I don't understand is why SMS games wouldn't work if it is connected to VA14, it shouldn't matter if it's 0 or 1? Or is it because when the 68k does not run, address lines are in a "intermediate" state which is neither 0 or 1 and the RAM chip cannot get a valid address ?