Hi,
It looks to me like the check against the Note's Created On date is preventing your logic from running on an update to a Note. Try updating your logic to:
If Note:Created On contains data AND [Regarding (Contact):Contact contains data], then:
if contact has modified date less than note date
If Regarding (Contact):Last Date of Activity on or before [Note:Modified On], then:
update to current customer
Update: Regarding (Contact)
By the way, there is no need to check whether Created On (createdon) and Modified On (modifiedon) have values. These are system fields that will always have a value.
