I'll give it a shot. Yes, your wall will eventually rot out. How soon depends on the quality of the installation. If drainage was properly provided to route water away from the wood as much as possible, it will last longer than if it wasn't. No way to tell how it was installed. If the timbers are pressure treated, as they most likely are, insect and moisture damage is slowed. Since the US is a big place, and prices for labor, and sometimes materials, can vary considerably from one place to another, the only way to know the cost of replacing it is to get a local contractor or three with good references and a reasonable amount of experience to come out and give you a quote.

These kinds of blocks have specific instructions for correct installation that can be found online. However, because you are modifying the materials, all that is out the window. I am no structural engineer, but feel very dubious about your use of caulking and glue. My intuition tells me those are not structural, and won't bear a load. Because the wall is under 3 feet, maybe you'll be okay, but don't take my word for it.

They do interlock side to side as well because each course is staggered over the previous one. Gardengal is correct as usual. If you do what you have described, it will be a jumble of blocks that will cetainly move about and become very messy. She also suggested using natural rocks instead. They will look fine. If you were to build a retaining wall and not use drainage stone behind it, it will weap soil with the water between the cracks. Even if it does not move the wall, the face of the wall will always be dirty. I see these fairly often. They are very noticeable in an unpleasant way. If budget and planting is your goal, I'd recommend following Gardengal's suggestion of making formations of rocks. The existing planting style will look great with rocks.

bgav, you used the term "sinkhole" but the general discussion does not indicate that a sinkhole is likely. It's probably a hole caused by surface erosion in which case solving erosion problems would take care of it. While slopes can present erosion problems, these are not unsolvable. Usually, all that's needed are groundcover-like plants whose roots form a network that holds soil in place and whose tops protect the soil surface from slamming rain and flowing water. Sometimes it can be difficult to establish such plants (if rain washes them out before they are established,) but it's not impossible if one dedicates one's self to the process. I would consider retaining walls necessary only if the grade is so steep that it cannot possibly stay in place as a slope. Do you have slopes so steep that no planting can possibly hold them? Look around the neighborhood and see if like slopes exist and if they are stabilized by plants. It such slopes exist elsewhere, they can exist on your property as well. You would only need to find plants capable of stabilizing them and working with your overall landscape goals. While the last picture you added is still too close-up, the slopes seen in it do not seem overly difficult. It's likely that if you have plenty of places where retaining walls COULD go, but limiting them to places where they are actually NEEDED might be a better strategy. We would not be able to suggest where such places might be without seeing some overall, wide shots of the areas. If you seek advice about where retaining walls could go from contractors who sell them, it is likely you will be advised to add a lot more walls than you need. Consider hiring a landscape architect or a qualified designer to advise on where walls would make the most sense.