Trying to setup individual world layers and so far it's failing. Conquest stuff is showing up in 1-Flag and 1-Flag stuff is appearing in conquest layer, and each layer still has it's own stuff of course. I set up individual layers the best I could but it seems I still failed somewhere.

In ZE, each layer shows it's own items, and the base layer does not have copies of them so it looks good there. I made sure to update the world req files by adding the new layer names under lvl and world, and in the map Lua files I made sure to have each game mode load the different layer that it needs to work with. All of this and it's still failing. I have to be missing something but I don't know what. Any help is hugely appreciated - this is driving me nuts.

It sounds like you didn't Configure the game modes. There is a button called just that near the top of the ZE window. All newly-created layers will by default be loaded in all game modes unless you configure them to be mode-specific. Doing so will update the the world REQ and MRQ files without you having to do so manually.

You should see three columns upon clicking that button: The first column from the left are all the layers that will be loaded in all game modes also known as the Common layers. Remove any layers from this list that you want to appear in only certain modes. The second column lists your game modes. The names used here don't necessarily have to match up with layer(s) you want them to use. Clicking on a game mode you added in the second column will allow you to specify/add any non-Common layer in the third column that you want that game mode to use.

Off-topic:

It is still not making complete sense. Now when I play conquest has nothing and 1 flag has items from both layers... still.

Please post a screenshot of what your Configure menu/window looks like, specifically with your Conquest game mode highlighted (simply click on it) in the second column.

This time 1 flag works fine in the game but conquest is still missing everything.
I got it now. In the conquest scripts I changed ReadDataFile("bes\\bes2.lvl", "bes2_conquest") to ReadDataFile("bes\\bes2.lvl", "bespin2_conquest")
I am not sure what made it changed to make that required but oh well, it works now. Still weird I didn't have to change ReadDataFile("bes\\bes2.lvl", "bes2_1flag") to ReadDataFile("bes\\bes2.lvl", "bespin2_1flag")

The answer to this discrepancy may lie in what your world REQ file currently looks like. Perhaps it was the result of leaving in the manual edits you made to it earlier in addition to using the Update World REQ and Mode MRQs button.