Hiked this today. The first 2.8 miles to the fire tower is moderately rough terrain. The trail is frequently marked, and even in several inches of snow, we had no trouble following the markers. This part has great views overlooking the lake.
After the fire tower, the next 2.5-3 miles are gentle, wide mountain biking paths.
The last mile heads slightly uphill along a stream. The watershed means that sometimes water pools on the trail and gets very muddy.
Overall really enjoyed this hike, would do again in drier weather
Largely due to the concerns that you have expressed regarding the condition of this trail, the Trail Conference does not maintain the Sterling Valley Loop. Concerns about the condition of this trail should be addressed to the Park Manager.