Dirt work first. Need to have the grade sloping away from the building. Remove enough so that you have a good 4-6" between the bottom of the cedar & the top of the limestone.

"I'm worried the stone will wick water into the wood if it is touching the wood."

It certain will and cause the wood to rot prematurely. ci_lantro's advice above is correct.

Yes,you must give water a path away from building and not alow soil to contact wood. There is no one size fit's all solution so on site evaluation is manditory. Some think french drains ae the answer but can be a waste of time and even make things worse in many cases.

Thank you. I was afraid of that answer. It is a tight space between our garage and the neighbours so that means much hand digging. Oh well.