For me the Keyboard Shortcut for the Zoom menu just adjusts the window size and position, it doesn't reduce the window to the controller/display only size. Selecting the menu command Zoom with the mouse does do this. Since that's what is supposed to be activated by the shortcut, it seems that this should work correctly. Anyone else have success?

As mentioned by others, this is most likely due to using the option key in your shortcut for "Zoom" in iTunes. Clicking "Zoom" in the "window" menu of iTunes while holding down the option key will zoom the window to a size necessary to view the whole screen (e.g., all columns), clicking zoom without the option key held will toggle normal/mini modes. Change the keyboard shortcut so it doesn't use Option (e.g., Command-Control-z as others have suggested and which I've been using for a little over a month now) and it should behave correctly.