A couple of things for if you just rebuild using the natural rocks...
1. Get some terra-grid (lots of different names for it). It gets buried horizontally and then laid between layers of rocks to tie it into the soil behind it.
- It can be used with interlocking blocks, but isn't necessary depending on height and design of the blocks.
2. When you back fill, mix the dirt with pea gravel for the first 8-12" horizontally from the wall. This aids in drainage, and will prevent a lot of your erosion problems.