I managed to get it to work. It's this instruction:
4c: In /includes/modules/YOUR_TEMPLATE/create_account.php, at around line 248 you should see the line:
if ($error == true) {
immediately before that add in the following code:
$zco_notifier->notify('NOTIFY_CREATE_ACCOUNT_CAPTCHA_CHECK');
Although running on zc1.5.1 engine, my cart was upgraded from 1.39h. Added that code, and everything is working!

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