Why do N-channel MOSFETs have a voltage drop when load is connected on source side?
The difference between the gate voltage and the channel voltage needs to be above the threshold voltage for the MOSFET to conduct well. If the load is between the mosfet and ground, then the more current you push through the mosfet, the more voltage drops over the load and the less gate-source voltage there is.

In the first topology, it doesn't matter how much voltage is dropping across the load, the mosfet always sees Vg - Vs, where Vs is always 0. In the second case, Vs rises with the load current and in turn pinches the mosfet back towards "off". So in the second case, you have Vg - Vs where Vs starts at 0 and increases according to I_load*R_load.

You're effectively lowering Vgs by putting the load below the Nmos.