I'm not sure what problem he's trying to solve. Is it a rendering problem, a "tile" placement problem, or something else?

Characters are always rendered on top of land, no matter how it is generated. The only issue is objects placed on the land. With 2D isometric, the sorting algorithm is more or less as he initially states, top to bottom. That is true no matter whether you use grid-based rectangular tiles, a pile of circles, or whatever.