Probably ok as long as the rim area is insulated. Space between the XPS and batts will permit air currents that reduce the effectiveness of the batt insulation. I would prefer to box and keep the wall as tight to the foundation as possible. Otherwise, fill the space with low-cost EPS insulation. Here is a link that might be useful: US Dept. of Energy R Value Recommendations

Thanks again, But if I may, I would like a little more clarification on this. First of all, although I realize all basements are going to have some moisture issues, relatively speaking, I have a very dry basement. So, from your last statement, if I attached 1" of XPS to the lower half of the wall (the cement block part) and built my new stud wall on top of that, I could confidently fill the remaining gaps with batt insulation to the ceiling? But, from what I've read in the building science articles, I should NOT put a vapour barrier on top of the insulation to allow for inward drying, unless it is MemBrain? I have no problems with this, it just seems counterintuitive. What happens at the top half of the wall (wood stud) that is built on top of the block wall above grade? It is brick veneer on the exterior if that matters.

@koszta: that stinks. Not a good feeling to have that happen. @worthy: Thanks for the link in post. I saw something about the zones somewhere on the net and couldn't find it again. That answers a few questions I had running through my mind. I am curious about something though...can I just put this foam right in between the 2x2's and butt them right to the wall like the studs are? Just not sure if this will cause problems for me in the future. I have not looked in detail at the link you gave. Maybe that will be answered there. In any case thanks again for the info. Appreciate it. Edit: Just had an idea.... (which I may or may not find an answer to in future readings) was thinking I can trim foam board to fit in between studs, put a layer of roll insulation, then the drywall? Also...is drywall gonna be too heavy for the 2x2's? Oh well... gonna go read some before I spam forum with more questions! This post was edited by PFlies on Sun, Nov 23, 14 at 17:17

Ha! Diaper.. Thanks for that link Worthy. Its a great one for sure. The physics are certainly not the same though. From a strictly building science point of view, insulation is best on the exterior which keeps the dew points high (walls warm) and reduces thermal bridging. It also brings the thermal mass inside the conditioned space which definitely boosts energy performance. From the link; "Exterior insulation best location from physics perspective, has practical problems with protection, thermal bridging and insects." Iam surprised they are taking this newer stance of recommending insulation to Interior. Their main issue is the most surprising to me right now.. Protection: Exterior basement insulation is not exposed very long during the building process and not particularly vulnerable once its up in my opinion. Once its backfilled, what sort of damage will it incur? What am I missing here? Thermal bridging: Ive always thought thermal bridging is usually less and was very surprised to see that one researcher found the brickledge location to be a major issue. If no brickledge, no issue as I see it. Even with a brickledge, a first course of foamglass would be ideal but realize the logistics and possible price increase is questionable. Insects: Tough to argue with this one down south. There are insect resistant foams available. Best practice leaves a gap before wood framing which is a fairly challenging detail to get right in the field and of course this leaves a significant thermal bridge if not accounted for from the Interior. This is another reason I love pre-cast concrete panels for basements because I dont have a choice in the matter, they only come with Insulation on the interior. Still, if pre-cast panels werent available and there was no brickledge I would probably spray foam to the exterior if the price was right and treat for termites which is required anyway. While I dont think the inspection strip would account for nearly the heat loss of a brickledge its probably significant enough to follow BSCs advice if building in termite country which is ever expanding these days.