In order of preference/priority, our company tends to upgrade based on these factors:

• Vulnerabilities, vulnerabilities, vulnerabilities!
• Bugs
• Attaining new features not currently available-- new cards/modules have a "first supported in" IOS version which could be higher than what you have running
• Migrating away from retired release trains
• Matching versions on more recently deployed and similar hardware

A device that is very critical to the infrastructure may not be as aggressively upgraded as one that is less critical. Consideration is given to the role of the device, the redundancy surrounding it, and the impact of the upgrade itself by the downtime incurred or by the possibility of having config feature behavior changes or different defaults when going between major versions. This is the necessity question that also touches on soft costs such as the time and resources to accomplish the upgrades measured against the weight given to each of the factors such as vulnerabilities.

Be sure to subscribe to multiple vulnerability announcement sites such as Cisco PSIRT (Product Security Incident Response Team) and the US Cert (Computer Emergency Readiness Team).

A downgrade might be in order if:

• Organization has a policy to only run tested/QA'd versions and new equipment came with a more recent release.
• Org has a policy against running anything other than GD.

• Use Cisco's Output Interpreter of "show version" to look for obvious issues/vulnerabities/bugs.
• Look for GD (General Deployment) releases and avoid DF (Deferred).
• Use ED (Early Deployment) only when it contains must-have features not available elsewhere.
• Avoid LD (Limited Deployment) when possible and use GD instead.

There are certainly arguments for going to an ED or LD version, but the desire, of course, is to get to the most stable version that meets requirements. Use Cisco's Feature Navigator to help identify potentially different feature-sets (assuming you're licensed to use them).

if you want to capture packages and analyze them with a packet sniffer (e.g. wireshark) the correct search term for Cisco IOS is SPAN (Switched Port Analyzer). See this documentation from Cisco.

Regarding your problem: I don't think that you'll find anything in the logs.

I would start checking if the port System1 is connected to is still active an really still accessing the right vlan. (show run)

sh ip int brief and show interface would be my first choices. Check if there are any error counters > 0.

There may also be some issues on the system itself. Check ip settings, proxy, DNS, ... (again). Ping the default gateway and system 2 and check if arp resolution is working.