People have posted examples of slabbed/cardboard-look site models here in the past - can't find the threads after a quick search just now, though.
No, the mesh cannot display as vertical steps. It will either be polygonal or smoothed. Magic wanding a 2D site topo to get a curvaceous site mesh is relatively easy as is doing the same to create slabs. Elevating each slab to the proper height is most easily done in the 3D window and snapping to the top or bottom of the adjacent slab. (Assumes that you made each slab the proper depth/height to correspond to the survey contour lines that you are tracing.)
Gravity is one of the important / useful things when working with sloping sites... and Gravity for placed objects can be enabled for both meshes and slabs, so you're good there
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