Internal energy of a substance is the sum of KE and PE of all its particles. But does gravitational PE count, eg lifting a block -> more IE?

I would not agree with your definition of internal energy.

I would consider that internal energy is the difference between the sum of all the kinetic energies of the individual particles less the kinetic energies of the body as a whole.

This definition comes from two different concepts. 1. In a collision between bodies momentum is conserved so the velocity of the centre of mass cannot alter. Hence viewing the system as a whole the energy is that of the centre of mass yet the total kinetic energy is higher than this.
The only energy that can alter as a result of the collision is the kinetic energy ABOUT the centre of mass not the kinetic energy OF the centre of mass.

2. The internal energy is used in thermodynamics as a measure of temperature.
Adding potential energy or adding kinetic energy to the body as a whole does not alter the temperature.
Only increasing the internal energy increases the temperature.

So the internal energy must be defined so that it IS a measure of temperature.