I wrote a very fast version of the transform to get these results. You can do the np.ushort inside the generator as well, and it's still fast but much faster outside:
import time
df = pd.DataFrame(
    np.random.randn(8, 4**7),
    index=[np.array(['bar', 'bar', 'baz', 'baz', 'foo', 'foo', 'qux', 'qux']),
           np.array(['one', 'two', 'one', 'two', 'one', 'two', 'one', 'two'])])
start = time.time()
df.loc[:,] = np.ushort(df)
df = df.transform(lambda x: [ i if i> 10 else namednumber2numbername[x.name[1]][i] for i in x], axis=1)
end = time.time()
print(end - start)
# 1.150895118713379
Here's the time's on the original:
df = pd.DataFrame( np.random.randn(8, 4),
     index=[np.array(['bar', 'bar', 'baz', 'baz', 'foo', 'foo', 'qux', 'qux']), 
           np.array(['one', 'two', 'one', 'two', 'one', 'two', 'one', 'two'])]) 
start = time.time() 
df.loc[:,] = np.ushort(df) 
df = df.transform(lambda x: [ i if i> 10 else namednumber2numbername[x.name[1]][i] for i in x], axis=1) 
end = time.time() 
print(end - start)                                                                                                                                                                   
# 0.005067110061645508
In [453]: df                                                                                                                                                                                   
Out[453]: 
             0     1      2     3
bar one   zero  zero    one  zero
    two      i     i      i     i
baz one   zero  zero   zero  zero
    two      i     i     ii     i
foo one  65535  zero  65535  zero
    two      i     i      i     i
qux one   zero  zero   zero  zero
    two      i     i      i    ii
I got it to a one liner:
df.transform(lambda x: [ np.ushort(value) if np.ushort(value) > 10 else namednumber2numbername[pos[1]][np.ushort(value)] for pos, value in x.items()])                              
             0     1      2     3
bar one   zero  zero   zero  zero
    two      i     i     ii     i
baz one  65534  zero  65535  zero
    two     ii     i  65535     i
foo one   zero  zero   zero  zero
    two     ii     i      i    ii
qux one  65535  zero   zero  zero
    two      i     i      i     i
Ok a version without .items():
def what(x): 
   if type(x[0]) == np.float64: 
      if np.ushort(x[0])>10: 
         return np.ushort(x[0]) 
      else: 
         return(namednumber2numbername[x.index[0][1]][np.ushort(x[0])]) 
df.groupby(level=[0,1]).transform(what)
            0     1      2      3
bar one  zero   one   zero   zero
    two     i    ii  65535      i
baz one  zero  zero  65535   zero
    two     i     i      i      i
foo one  zero   one   zero   zero
    two     i     i      i      i
qux one   two  zero   zero  65534
    two     i     i      i     ii
and one liner!!!! no .items per your request! We groupby Levels 0 and 1 and then perform the calculations to determine the values::
df.groupby(level=[0,1]).transform(lambda x: np.ushort(x[0]) if type(x[0]) == np.float64 and np.ushort(x[0]) >10 else namednumber2numbername[x.index[0][1]][np.ushort(x[0])])
            0     1      2      3
bar one  zero   one   zero   zero
    two     i    ii  65535      i
baz one  zero  zero  65535   zero
    two     i     i      i      i
foo one  zero   one   zero   zero
    two     i     i      i      i
qux one   two  zero   zero  65534
    two     i     i      i     ii
To get the other values i did this:
df.transform(lambda x: [ str(x.name[0]) + '_' + str(x.name[1]) + '_' + str( pos)+ '_' +str(value) for pos,value in x.items()])
print('Transformed DataFrame:\n',
      df.transform(what), sep='')
Transformed DataFrame:
                             α                                                        ...                          ω                                                       ε
f                            a                          b                          c  ...                          b                           c                           j
one  α_a_one_79.96465755359696  α_b_one_31.32938096131651   α_c_one_2.61444370203201  ...   ω_b_one_35.7457972161041  ω_c_one_40.224465043054195  ε_j_one_43.527184108357496
two  α_a_two_42.66244395377804  α_b_two_65.92020941618344  α_c_two_77.26467264185487  ...  ω_b_two_40.91908469505522  ω_c_two_50.395561828234555   ε_j_two_71.67418483119914
one   α_a_one_47.9769845681328  α_b_one_38.90671671550259  α_c_one_67.13601594352508  ...  ω_b_one_23.23799084164898  ω_c_one_63.551178212994465  ε_j_one_16.975582723809303
Here's one without .items:
df.transform(lambda x: ['_'.join((x.name[0], x.name[1], x.index[0], str(i) if type(i) == float else 0)) for i in list(x)]) 
output
                             α                                                        ...                          ω                                                       ε
f                            a                          b                          c  ...                          b                           c                           j
one  α_a_one_79.96465755359696  α_b_one_31.32938096131651   α_c_one_2.61444370203201  ...   ω_b_one_35.7457972161041  ω_c_one_40.224465043054195  ε_j_one_43.527184108357496
two  α_a_two_42.66244395377804  α_b_two_65.92020941618344  α_c_two_77.26467264185487  ...  ω_b_two_40.91908469505522  ω_c_two_50.395561828234555   ε_j_two_71.67418483119914
one   α_a_one_47.9769845681328  α_b_one_38.90671671550259  α_c_one_67.13601594352508  ...  ω_b_one_23.23799084164898  ω_c_one_63.551178212994465  ε_j_one_16.975582723809303
I did it also with no groupings:
df.T.apply(lambda x: x.name[0] + '_'+ x.name[1] + '_' + df.T.eq(x).columns + '_' + x.astype(str) ,  axis=1).T
or even better and most simple:
df.T.apply(lambda x: x.name[0] + '_'+ x.name[1] + '_' + x.index + '_' + x.astype(str) ,  axis=1).T 
or 
df.T.transform(lambda x: x.name[0] + '_'+ x.name[1] + '_' + x.index + '_' + x.astype(str) ,  axis=1).T 
or with no .T:
df.transform(lambda x: x.index[0][0] + '_'+ x.index[0][1] + '_' + x.name + '_' + x.astype(str) ,  axis=1) 
                             α                                                        ...                          ω                                                       ε
f                            a                          b                          c  ...                          b                           c                           j
one  α_a_one_79.96465755359696  α_b_one_31.32938096131651   α_c_one_2.61444370203201  ...   ω_b_one_35.7457972161041  ω_c_one_40.224465043054195  ε_j_one_43.527184108357496
two  α_a_two_42.66244395377804  α_b_two_65.92020941618344  α_c_two_77.26467264185487  ...  ω_b_two_40.91908469505522  ω_c_two_50.395561828234555   ε_j_two_71.67418483119914
one   α_a_one_47.9769845681328  α_b_one_38.90671671550259  α_c_one_67.13601594352508  ...  ω_b_one_23.23799084164898  ω_c_one_63.551178212994465  ε_j_one_16.975582723809303