A footer is the concrete poured in the bottom of a trench, upon which a masonry perimeter wall is built to above ground level to support the wooden structure. The footer is normally considerably wider than the wall is thick, to distribute the weight of the structure. Today's building practices would require that the footer have a certain number and size reinforcing rods ,"rebar" imbedded in it to strengthen the footer and prevent breaking. The footers and the wall are usually referred to as a foundation. Another type of construction is where the earth is excavated down to undisturbed soil and masonry columns or post are constructed upon which beams rest and joist are attached.

When a basement is dug under an existing structure, the general procedure is to excavate close to the existing foundation but not so close as to disturb the soil supporting the structure. A retaining wall is then built up to or above the existing footer to hold back the soil. The structure still rest on its original foundation.

What you are referring to as foundation walls are retaining walls. Normally these appear to be much thicker than 8". They usually appear to be 18 to 24". Its not the actual thickness that important, it just if they are only 8' thick, it means that the soil was excavated right up to the original foundation. Meaning that the soil under the foundation was disturbed.

When basement walls are poured the back filling of the soil is not completed until the sill plates on top of the walls and the first floor joist are installed. The pressure of the soil against front basement wall is opposed by the soil against the back basement wall because the two are tied together by the joist.

I think your structural engineer was incorrect when he said that the lolly columns (steel post) were set to high.

The house has sunk or settled because of the disturbing of the soil under the foundation.
The lolly columns have not sunk. The cracks in the retaining wall are probably because of the lateral pressure created by the sinking foundation. They should have had reinforcing steel imbedded near the top. There is no structural member to transmit the pressure to the opposing wall.

All other cracks in walls and ceilings can be attributed to the uneven sinking of the structure. It is not unusual to have a crack in a basement floor. These however should be quite small and few. Major cracks, with large gaps indicate poor soil preparation and compaction. This is especially true in your case because the house is not really sitting on the footers that support the basement floor and retaining walls.

On the odor and apparent moisture in the exterior walls it's really hard to say. It could be anything from a leaking roof to stopped up gutters overflowing back into the wall at the roof line. Water in th basement is not at all surprising given the cracks in the retaining walls and you said nothing about a sump pump or perimeter drains in the basement.

The strong foul odor and the apparent moving or sinking structure makes me think that you could have broken or ruptured sewer line in the upper level. You would be surprised how far water can run horizontally before you see evidence of it.

As far as the hardwood floors. I seriously doubt that they are actually hardwood, more likely pine flooring salvaged from somewhere in the house. You don't say how thick they are but they probably just minimally meet the structural requirements.

The most encouraging thing I can say is, that most likely that after 3 years, the house has probably settled about as much as it is going to.

You certainly need to find the source of the water in the exterior walls. Look at gutters and down spouts and grading to ensure that water is carried away from the house. If down spouts are not piped they should be. Excessive water in the soil around the foundation softens the soil and allows sinking.