I'm thinking that you will probably have to split objects into uniform sized pieces. This may be why isometric games use tiles that are all the same size instead of having some large and some small.
I've read this plainly stated in some documents regarding classic isometric games =(
Also, I just got the reasoning why Y-sorting could never possibly work with different heights.
Imagine an iso box stacked on top of another iso box, correctly sorted so that the one above is drawn on top of the other one.
Now imagine the box on top going down. It's not moving on Y, only on W (or Z or whatever). As soon as it goes below the other box, since Y has not changed, it will be incorrectly sorted, drawn above the box that sits on top of it.
SO you have GOT to involve height in the equation. I'm still on that. I just know now that Y-sorting only works for level objects.