What kind of foundation should I use for this garden shed site location?
I would definitely keep the wood off the ground if you want to keep the shed around for the long term.  If you do decide to install pier or something similar, I think you have a couple solutions depending on how permanent you want the shed.

Permanent

This question must be related to your earlier question about post anchors.  In fact I would do exactly what is shown, using an 8" or 12" sonotube with a post anchor for 4x or 6x lumber. Upsides: You'll have a very solid base and won't have to worry about it moving around when/if you decide to put in a retaining wall.  Downside: your shed isn't moving.

Non-Permanent

Standard pier blocks with built in Anchors should give you all the strength you need for less hassle and cost.  Upsides: You could conceivably move your shed if you needed to.  Cost is probably half as much for the foundation.  Downside: Disturbing the soil around the pier block could move the shed off level when/if you decide to put in a retaining wall.  Of course you could probably jack up the shed and re-level it.