The top hole is indeed used for the washer drain.
![enter image description here](https://i.stack.imgur.com/Qrw3H.jpg)
The lower pipe is used to drain a washing machine pan.
![enter image description here](https://i.stack.imgur.com/4Y6xn.jpg)
If the washer leaks this pipe allows the water to drain away safely, instead of flooding the laundry area.
Front Loaders spin at an incredibly high rate compared to top loads. Because of this, the amount of vibration that is transferred to the structure is immense compared to the top loaders of days past.
A concrete slab is the ideal substrate, as it will absorb all vibration. But if the home has a solid joist system and subfloor, they are viable. However, there will still be noticeable vibration. We have a 1989 built home (also in Puget Sound) that, alas, doesn't handle the front-loader washer we just bought a few months ago as well as we'd like. I will be installing lolly columns in the crawl space to reinforce the laundry room floor. If that doesn't cure things, it looks like I'll eventually be building a laundry room in our garage.
The reason they are not allowed on second floors has nothing to do with leaking (as that's a risk of ANY washer, of course) but because the live load requirements for residential construction differ between the main floor and the second floor.
I can't find a direct source to cite (if anyone can find one, please share!) but IIRC, the live load requirements for the main floor of a house is 40psf, but the live load requirements for sleeping areas on a second floor are less at 30psf.
A front load washing machine, in spin cycle, is a very "live load"*. :)
The bottom line is that in the US, the typical construction of second floors aren't equipped to handle the abuse of a front-loader washing machine.
You could probably get an exception if you reinforce the flooring in the second floor room that will house the washer. But that's likely not going to be cheap--ultimately costing you more than the savings in energy you get with the front loader. I believe PSE's top loader option is still a high efficiency appliance, though, so you'll still see a savings in energy with that. It just won't rattle your house quite as much.
UPDATE:
Found the load tables. Here's an excerpt:
From the International Residential Building Codes
TABLE R301.5 MINIMUM UNIFORMLY
DISTRIBUTED LIVE LOADS
(in pounds per square foot)
USE LIVE LOAD
- - - - - - - - - - - - - - - - - - - - - - -
Habitable attics and attics
served with fixed stairs 30
Rooms other than sleeping room 40
Sleeping rooms 30
(*) NOTE: As ben points out--and as I attempted to point out with the smiley face--the fact that washer vibrates a lot isn't what makes it a 'live load' necessarily in the eyes of building code. My point was that the upper floor is just built to a different standard than the main floor. That said, I do see the broad definition of live load also includes vibration: http://en.wikipedia.org/wiki/Structural_load#Live_loads
Best Answer
As indicated by isherwood your air gaps are mandatory. This is to prevent return of waste water into the appliance. In your setup you have an air gap but only one and also only one trap. It is better to construct separate air gaps and traps for each unit and combine both after the traps into the sink.
Construction can be straight forward: Take 2 traps and combine the outlets. Place some 10 to 12" pipe on top of the trap and put the appliance hose directly inside without a seal. The gap is then formed by means of the space between the hose and the pipe.