I think it'd be a good idea to add Z and BZ file types to the file filter of the "Run ISO Image..." dialog (Linuz ISO compressed images). I also suggest you to change the command name for "Run Game Image..." or similar, because the plugin supports other image types (mdf, nrg, etc...) and its name can make new users think it only supports ISO.
I read the developers are working now in a new GUI, so I don't know if any of this applies to the new interface.
The built in ISO loader doesn't actually support the Z/BZ compressed images of Linuzappz CDVDiso. If you want to use those you'll have to continue to use Linuzappz' plugin.
The use of ISO is actually technically correct and we probably won't stop using it even if it means confusing noobs. 'Iso' refers to the
ISO 9660 File Format Standard, and all of the variants you listed (nrg, mdf, etc) are, in fact, ISO standards compliant formats. That's why they're all supported in the practical sense, because for any standard disc image they all comply to the ISO 9660 format, which is the only actual format that PCSX2 and CDVDiso support. For that matter it's possible to create an nrg or mdf that PCSX2 cannot load, if the images use special advanced features of those formats.
I also try to avoid the term "Game" when laying out the GUI, since it's not
just game images the emulator can potentially run.
I think more people can understand "ISO" more than "Image" anyway.