This project was designed with careful thought given to waterproofing the structure. It is this architect's opinion that poured concrete is the correct choice for the retaining wall despite your aesthetic preference for landscape block.
Moisture weeping into the structure from the North wall ought to be avoided with this design choice. Note the moisture management systems noted on Sheet A6.
Structurally a reinforced concrete wall is the correct choice when considering the climate and moisture bearing capacity of the earth behind the wall.
To mitigate the negative aesthetic of a smooth concrete wall I recommend the wall be formed using sandblasted boards to give the wall character and a more rustic appearance. For an excellent summary and example pictures of this method of forming concrete see [url=http://www.lifeofanarchitect.com/board-formed-concrete/]board formed concrete[/url]. I tried to approximate this look in my renderings, but that sort of detail isn't always clear depending on the view. Interior Perspective 1 on A7 shows the material the best.
Outside of the structure, the wall could transition to landscape block, but the height of the wall should be taken into account. Typically to go above 4’ the wall would need to be tied into the slope using geogrid or other slope stabilization methods. I recommend you continue the board formed concrete wall to the outside as well.
This has been an enjoyable structure to design and think through. Regardless of whether my design gets chosen or not, I wish you luck in building a quality structure that brings you lasting enjoyment.