It's actually possible to make your collision detection algorithm dimensionally agnostic. Just have a collision detector that works along one dimension, use that to check each dimension, and your answer to "are these colliding or not" is the logical AND of the collision detection along each of the dimensions.
Your game should be organised to keep the interaction of game objects, and the rendering of the game to the screen completely seperate. You can think of these two sections of the program as the "model" and the "view". In the model, you have a full 3D world, with 3 axes. You can't go halvesies on this point without some level of pain. Your model must be proper 3D.
The view will read the location of all the game objects, and project them onto the screen using the camera definition. For this part you don't need a full 3D rendering engine. The correct technical term for the perspective you're talking about is "oblique", and it can be seen in many ancient chinese and japanese scroll paintings and prints- in particular look for images of "The Tale of Genji".
The on screen position of an object (including the ground surface!) goes something like this:
DEPTH_RATIO=0.5;
view_x=model_x-model_z*DEPTH_RATIO-camera_x;
view_y=model_y+model_z*DEPTH_RATIO-camera_y;
you can modify for a straight orthographic front projection:
DEPTH_RATIO=0.5;
view_x=model_x-camera_x;
view_y=model_y+model_z*DEPTH_RATIO-camera_y;
And of course don't forget to cull objects outside the volume defined by the camera.
You can also use this mechanism to handle the positioning of parallax layers for you. This is of course, a matter changing your camera to a 1-point perspective projection instead of an orthographic projection. You don't have to use this to change the rendered size of your sprites, but it will help you manage the x position of objects realistically. if you're up for a challenge, you could even mix projections- use 1 point perspective for deep backgrounds, and the orthographic stuff for the foreground.