I would stagger them, and place the larger rocks towards the bottom. perhaps 'curving' them to create a nice look. I am not talking from personal experience though, my husband does this and i watch him. :) The people here are quite knowledgeable and I'm sure someone will see your post and offer more 'hands on' advice :)
Nicci

When I did my waterfall, I started with the liner like you have. I dug steps into my dirt and placed the liner over as if covering shelves. Then I began to stagger the rocks as if laying shingles. I remember working many times over to get the correct lay and used shims (smaller rocks) to get the bigger stones to lay properly. Trial and error works best. I'd give you a picture but sad to say that pond and waterfall no longer exist. You will also have to bring your liner up more along the sides so you won't have water running over the edge.

So, it would be better if I dug out steps instead of going with just a slope?

The steps made it easier to assemble the rocks for a cascade effect. Plus it gave the rocks a more stable platform to layer them on. As I said, trial and error. It took me three times of building tearing apart and rebuilding to get the look and fall of the water that I wanted. I started the first time using the Great Stuff and then just started shimming to hold things together. Helps to have someone standing by to keep shutting off your pump when things need to be moved around. Hope this helps. Feel free to email me if you need more help.
Liz

Hi....we used bags of play sand to build the step effect. Has been running for 5 years with no problems. Also used the sand bags under the liner to make the outer edge higher.
Hope this helps.

How is it going? Any updates? I am doing something simmilar, but with a stream that conncects the waterfall to the pond.