Some people have wild camped along the Erie. Although I do not recall seeing any designated sites, aside from the locks, I do not recall seeing too many posted "no camping" areas. Potable water may be an issue since the area is fairly developed and there are no "mountain streams" to source water from and the canal water is not something you would want to drink, even if you boiled it for a week

. Some towns have water spigots along the trail so you could pack water in to camp. We rode during COVID so a lot of services were closed and some public water was turned off.
You can camp at many of the locks. I think stealth camping would work fine if you setup late and packed up early and camped on weekdays versus weekends. We camped mostly in private campgrounds and opted for a few hotel nights to get out of the 90 degree heat in August and the afternoon and evening thunder showers. Bring bug repellant. The mosquitos were horrible, the worst that we have even encountered on any bike trip.
As far as downhill to DC goes, that works on the C&O but the GAP is a steady climb (very gradual) all the way from Pittsburgh to past Meyersdale when you cross the Eastern Continental divide. Once you reach that point you have about a 24 mile downhill run into Cumberland where the GAP and the C&O meet. Once on the C&O the grade is hardly noticeable in most areas. This will help in planning for the Erie and Hudson Valley
https://empiretrail.ny.gov/map