Answers

You need to make sure that the material allows water to pass thru the block or stone.  Both choices can allow water thru if planned ahead.  Blocks can have weep holes that allow water to pass and many faux stone products are designed for drainage. 

Give a place for the water to go -

Mark, the answer depends on the topo ie the slope and terrain. Consult a local structual engineer..

proper drainage away, footers, rock, filter cloth, french drainect ect ( water is a hydrolic tool)

The design and layout are also important

*** A great engineer showed us the value of reenforcing a wall with a block planting box....  this gave an enormus amount of protection from failure

Best of Luck

Billy Gavigan

Gavigan

The biggest issue we run into is not having enough black dirt (quality soil) on on hand. Trucking in more soil can add thousands of dollars, and it's not often evident at the start of construction or remodeling.

In Georgia a wall retaining over 48" grade requires an engineers stamp.

You might consider terracing and have two or more lower retaining walls. Be aware of hydrostatic pressure and provide adequate weepers to deminish concern for hydrostatic pressure. Good Luck!

You night try Pine straw instead of wood mulch. It's less prone to washing.

Drainage is a common issue that clients don't anticipate. 

What is the water source? It looks like it is coming from a drain pipe behind a shrub? I would recommend relocating that to dump to a different location. No matter what type of edging you install on the bed with the mulch, a massive amount of water from that down pipe will cause some overflow and mess. Maybe you can incorporate a stone trail where the water flows, if you can't relocate the down pipe. Ideally, I'd want to see the drain pipe go under the side walk, and out by the grass, or if its by a garage, down the driveway.

You can install a flexible downspout extension on your downspout that is next to your front step and run it behind your bush out past your mulch to keep the water from washing your mulch away.  You can buy the flexible downspout extensions at Lowes or Home Depot.

Install a decorative stone border or edging that will help hold the mulch in place.