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Does the terraced section get sun?
If so I would build this out properly so you can sit on the steps and then grow compact herbs, Alpine plants, wall flowers, etc through and around them.
For the rest of the garden, given the banks on the side I'd go with the prairie style because you could get some really interesting height.
You'd know best for your garden, but ime stepping stone paths don't have great longevity - even less so in heavy clay - right now mine is better than the lawn, but still shit. I'd be inclined to put in something a bit bigger and more robust.
In a domestic garden isn't a core element a path + massive beds on the side?
Like this
So I'd of thought that's an easy one to tick off. Either your want your garden like that or you don't. Obviously you can make "rooms" where one bit is like that.
From the sounds of your garden a lawn isn't that useful. You could also add drainage to the path - maybe even elevate it a bit + a camber. Then the clay and boggy lawn won't be such an issue.