I would go this way

[code]
#!/bin/sh

#set the current working directory
CWD=$PWD

find $CWD/* | while read f
do
if [ -d "$f" ]; then
#directory
continue
fi
#get extension
e=${f##*.}
if [ -z "$e" ]; then
#no extension
continue
elif [ "$e" != "Z" ]
#not a Z extension
continue
fi
#get the directory part
d=${f%/*}
#filename part
fn=${f##*/}
#name part (what's before .Z)
name=${fn%.Z}
newname="$(echo $name | tr '[:upper:]' '[:lower:]')"
if [ "$name" == "$newname" ]; then
#already lower case
continue
fi
#form the full path of the new name
g="$d/$newname.Z"
#rename the file
#please test before you do the actual renaming
echo "mv \"$f\" \"$g\""
#uncomment if everything looks ok
# mv "$f" "$g"
done

a lot of your code are redundant.
you can just do . To get various info about the file , such as parent directory names, etc, you can use GNU find's printf option with specifiers.

Which is why I clearly said it was a version 4 option when I brought it up. But if you are using v4 (and most major distros should be upgrading to it before too long) then it's a much more efficient option than calling an external command, particularly if you need to do really big rename jobs on "thousands of files".


BTW, could you please fix your signature? That overly-long dashed line is breaking the page format. Thanks.

CentOS/RHEL have featuries lockdown for ~5 years, untill the next major version. If you count those still on version 4.x, there is very large base of server oriented users that will for quite some time be on Bash v3. But there is a god deal of them not knowing their Bash version.
Maybe just to rephrase and say something like "If you have newer version of Bash, v4...." so those who are not aware of their version would stop and think a little... You would be surprised how little people use their grey cells. There is a very good reason for "idiot proof" technology.

Hm, I thought I already did. Oh well, I shortened it now.