Glad you solved the problem. The next time you face one, though, avoid the kitchen sink approach and first take some time to look at how the item you are working on operates.

In this case the fact that the lever has to pull on the cable to shift to the larger/lower gears means there is resistance (a spring) that keeps it from moving that way on it's own. The fact that once you release the cable the derailleur returns means that only that spring is helping it to shift the other way (by pulling on the cable in the opposite direction). If a portion of the cable is loose then logically something between the loose portion of the cable and the derailleur, where the spring is, is the problem. That would have been the curved housing.