Based on your info, if you can support enough liner to keep water in and rework the wall, you could keep water in the bottom for your fish. I had to build a 40 inch retaining wall across the back of the pond. I poured a footing- then rebar-then blocks and put concrete in the voids of the block. I then backfilled the inside with dirt to create a slope. This took some of the water pressure off of the wall right at where the footing and block met the ground. I use old carpet and pond underlayment to protect the liner and then ran the liner over the wall and capped it. It was a PITA but worth it. If you do not think you need that much support, you could use decorative interlocking landscaping block instead.

I have no advice to offer, only encouragement. What a great project! Well, I do have one piece of advice - take care with your back and hands. I am making a flagstone walk, and have learned how carpal tunnel can effect moving that flagstone around, although I am well past the age of toddlers. : ) Keep us posted with photos as you progress. I hope you get great advice from those 'in the know'. Jane

Stone durability usually isn't an issue. First question is who is going to build the wall? The type and shape are important to that person, and the appearance will be a combination of the material and that person's style. You need to buy stone by the pallet, not the pound. You can check the Stoneyard website for comparison prices (they are in Littleton) or other ideas. Yes, all stone eventually turns gray in New England, but you might not want to wait 50 years, so you should get stone that you can look at from day one.

You can do it the way you suggest although it may be difficult to attach the plywood (near the firebox opening you can use cement board which meets the code requirements for non-combusitble materials). However, I would suggest that you use mortar, and trowel it on in a sufficient quantity so that it fills up the irregularities and mortar joints and you end up with a reasonably smooth surface. You may have to do it in two coats - first partially filling in the recesses and then a finish coat - the reason is that otherwise a thick coat may sag before it dries. Then you will end up with a surface that is perfect for adhering stone or ceramic tiles to (and it won't stick out into the room as far as a plywood overlay), or even dry wall if you use lead or plastic anchors. This assumes that the existing stone has not been coated with something that will cause the mortar not to stick. If it has, you can use fortified thinset mortar, although it is messier to work with. Hope this helps. Also, since it's 15 feet high you will need a sturdy ladder or even scaffolding (cheap to rent) since the mortar is heavy and you need leverage to apply it.