Ellie
Once the carpet is damaged there really isn't much you can do.
Have the carpets been properly steam cleaned? A good operator can make even the dingiest carpet look like new, and would know how to minimise the discolouration from the water damage. Otherwise, hire a Rug Doctor from the supermarket or local drycleaners and try yourself.
If you have had them cleaned, try Borax, which is a salt compound you will find amongst the cleaning / laundry products.
Borax crystals are a natural product and will fix most stains without bleaching. It's great for woollen jumpers, follow the instructions on the packet for the carpet.
Regarding your mountainous bank, if all else fails then lay good 'ol cheap chicken wire across the bank fastened down with home made tent pegs; cut wire coat hangers into pieces, turn one end down (use pliers of course), and force into the ground on an angle.
If you look, you will see that this method is often used on road side embankments. Lay your straw mulch under and over the wire, and you won't see the wire at all. Small plants will grow through the wire mesh quite happily.
Chicken wire is available by the metre from Bunnings. While you are there get yourself a decent pair of pliers with a wire cutting beak (for want of a better description). When you've finished doing that, if you still have some coat hangers left over, cut open the hanger or untwist the collar, curve one end over in an 'S' end, and lift up and hook over your spouting, turn a smaller hook in the free end, and you can hang your wind chimes, pot plants etc without having to screw holes in anywhere.
Ellie, just resist the temptation to cut newspaper fringes for your lampshades or all your friends will sneak off with your copy of 'The Castle' muttering 'well, what do you call that, then' and laughing hysterically into the night!
Enjoy your house!
Kristine