If your putting a fence up, then I would just grade out the bed, throw some good landscape fabric down and then some rock.
KISS method on this one. Don't get to fancy, and I'm not trying to knock/badmouth your property, but you can only put so much lipstick on the pig.
Like I always tell my clients, if you've got plans for the house, do that first and the landscaping last.
Also, if your using a string line and string line level, you must have your line extremely taught in order for it to read correctly. Ditch the wooden posts and get some long 1/2 re-bar and steel posts to tie your line to.