As is, every level is only useful insofar as it helps with lower levels. But Level 1 still isn't the ultimate goal. You don't live to do the dishes, and not – at least not necessarily – to work. I think this model should be extended by Level 0 actions, which are things that directly cause happiness (or, alternatively, whatever else your ultimate goal is in life). Level 1 is, I think solely, useful to provide you (or others) with more opportunities to do Level 0. Level 2 then is useful to help you with Level 1, etc, so everything stays the same. Your thoughts about how people do too few / too many actions on a certain level is also directly applicable to Level 0.

What is different is that all Level n actions now also have a Level 0 component, but I think that's useful to have since it corresponds to a real thing in the world that has previously not been covered. As an example, if you can do a Level 2 & 0 action (such as reading up on computer science which you enjoy doing) instead of a pure Level 0 action, then that should always be a good idea, even if there is a risk of low connectivity back to Levels 1 and 0.