Using cached https://github.com/OctoPrint/OctoPrint/archive/1.6.1.zip
Requirement already satisfied (use --upgrade to upgrade): OctoPrint==1.6.1 from https://github.com/OctoPrint/OctoPrint/archive/1.6.1.zip in /home/pi/.local/lib/python3.7/site-packages
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Building wheels for collected packages: OctoPrint
Running setup.py bdist_wheel for OctoPrint ... done
Stored in directory: /tmp/pip-ephem-wheel-cache-rtx0rxny/wheels/8c/d2/f1/2d84c6d080a5cc076b193416006fa0ffeaf0166b8d46ca0ee6
Successfully built OctoPrint
To clarify the difference between what you did and what the guide tells you to do, OctoPi uses a Python "virtual environment" to run OctoPrint. A virtual environment is a sort of "private" installation of Python which contains only the modules needed to run OctoPrint. By design, the virtual environment and the system-wide Python are fully separated from eachother.
By using pip from the system path, you installed OctoPrint 1.6.1 to the system-wide Python environment. However, when starting OctoPrint using sudo service octoprint restart, you start the OctoPrint version that was installed to the virtual environment. That version is untouched by the system-wide pip command, so it was still the 1.7.2 version you had before. To do anything with the OctoPrint version that comes with OctoPi, you need to use the pip that is part of the virtual environment, which is ~/oprint/bin/pip.
It would always be nice to know what issues you're having, so that if possible they can be fixed. We would rather everyone was on the latest version, as they are up to date with the latest bug fixes and it makes support a lot easier.
The Z instructions are for some reason not making it to the printer. So the bed is hard up against the nozzle. The other instructions are making it there and you can hear the head trying to push out filament....
I am of course just guessing here but it was not happening before the upgrade.