Well, the only thing you need to know for the backstory for this episode is that Adric stowed away in the TARDIS at the end of Full Circle (his brother had died fighting the Marshmen, so Adric had no other family ties among his own people and was a misfit anyway), and the TARDIS is stuck in E-space.
State of Decay is a creepy, gothic tale involving vampires, ancient Gallifreyan folklore, and there's a scene with bats that always gives me the creeps every time I watch this one. So of all the E-space stories, this is actually the best in terms of "creepy monster-ness", costumes, and the story makes sense. From what I've noticed of the stories you've discussed, you've certainly stuck with a lot that are far, far worse.
State of Decay is worth your time, unless vampires aren't something you're into.
Well, I'll probably try it eventually. I'm sure its not a horrible serial. Honestly, i'm sure City of Death wasn't even that bad. I just grew tired of the rapidly decreasing quality of Fourth Doctor stories, and I don't feel like seeing anything with Tom Baker for a bit. I've seen worse serials, but with, say, the Sixth Doctor I never got tired of watching The Doctor himself, even in the worst of his stories. It became a chore to watch City of Death and post Season 15 4th Doctor stories in general, so its just a good idea to me to stop for awhile, even though I'm sure there are at least a few good 4th Doctor serials left for me to see.