took a quick look, aren't those backlinks to subdomains? No idea what the product/service does but it appears subdomains are the main spam links, not the root.. So perhaps they were duped by spammers creating subdomains

It is a create your own store product. People would have simply been making a store and then using software to spam their links everywhere. I think sub domains are usually treated as separate domains though?

They are separate for user generated subdomains. http://www.seomoz.org/blog/understanding-root-domains-subdom...

It is possible that on that fateful day, Google noticed zlio is user generated sub domains, and lost power.

technically you could still suffer from that.

subdomains are treated as separate domains, right

If all the subdomains had links back to zilo (say the header or footer), it starts to look like a huge link farm, or a bunch of satellite sites. It's actually pretty dangerous. But disavow is here, right? hah

Yep, totally possible