i also tested this on my notebook with a nvidia 430 graphics card. the result was the same.
the default cache level of "4" showed massive and ugly banding (i did not test higher cache levels). reducing the cache level to 1 showed much smoother images. all other image editing tools i tested don ́t show this massive banding issues. only photoshop has this problem.
this issue was always labeld an "user error" in the past by adobe employees (advice was : add more noise to avoid banding").
this example clearly shows that it is NOT an user error. i can reproduce this behavior on my systems and i asked friends who can also reproduce this with photoshop CC.
Yes, that is expected because the upper levels of the image pyramid are 8 bit/channel to improve performance. I think there is already a feature request to change the upper levels to 16 bit/channel for 16 bit/channel images (losing performance, but gaining a little bit in quality depending on the exact image and adjustments used). Yes, the image cache setting can affect the appearance, because of noisy images or subtle changes applied to the image not being preserved in the downsampled leve...