The Code is wrong. (See anything by J. Lstiburek for the scientifically-proven methods.) To meet the Code I suggest Building' Science Corp.s other methods--sprayed-foamed insulation or mechanically-applied XPS, with all seams and joints taped with building tape , such as Tuck tape.

I was in the same predicament as you, I was required to put up a vapor barrier. After moving in, I promptly tore off all the plastic. Now I have to also remove the studs to apply EPS. Major PITA. Worthy is right, code is wrong.

What worthy said!

The basement is actually already finished - 1960's panelling. The walls are framed about 1 1/2" away from the foundation. There is no insulation and no vapor barrier. There is also a gap around the entire perimeter in the floor between the slab and the foundation. The basement has hot water heat.

After some further thought, I'm considering just removing the paneling and putting up sheetrock. The basement is always dry and the temperature is always comfortable. I keep a dehumidifier running in the summer months. It collects alot of moisture and seems like it is always running; however, the basement is never "wet." There is never condensation on the walls or even on the cold water pipes.

So, I'm thinking about leaving well enough alone and just replacing the panelling with sheetrock. Does anyone have any strong opinions about not doing this? I'd appreciate any comments.

There is also a gap around the entire perimeter in the floor between the slab and the foundation.

A perimeter drain, perhaps.

If you're in a mixed or cold climate, there's bound to be a lot of heating bucks being sucked out through the top few feet of your basement. How much depends on the height above grade of your basement.

Yes, I believe this is a perimeter drain. We also have a sump pump, but I've never seen any water in it.

We are in a mixed climate (central NJ). The basement walls only extend about 18" above grade.

I have another question. What about insulating only half of the wall? My foundation was constructed with poured concrete half way up, then the top half is cement blocks. The framed wall is about an inch away from the foundation at the bottom, but 1/2 way up, the wall is closer to 4" away from the blocks. I could easily put insulation on the top half of the wall without worrying about it touching the foundation. Would this be worth while?

Also, I was thinking about using Drylock to perhaps help with the humidity. Without removing the wall framing this is going to be a real hassle, so I don't know if it is worth while. Would I do only the concrete block part of the wall, or is this supposed to be applied to the solid concrete lower half of the wall also?

Thanks guys for your replies.

You are losing a lot of heat through those 18" and the next three to four feet. If you remove, say one stud, you should be able to slip in sections of shiplap XPS, then use masonry anchors, such as Tapcons, and fender washers to secure it to the wall and tape the joints. (I'm repeating myself, I know.) Or you could get some estimates on the cost of spraying closed or open cell on that section of the wall. Either way, you should finish it with drywall for fire safety issues. Be sure to use mechanical dehumidification to reduce the humidity to below 50%. I wouldn't bother coating the blocks.

Worthy - thanks for the tips.
So, you're saying:
1) Must insulate (not fiberglass, but XPS or sprayed)
2) Don't bother with the Drylock
My foundation wall is 4' high poured concrete with 3' high concrete blocks on top. Should I just put the insulation on the upper "half", or around the ledge and all the way down to the floor?

I also recently posted this related question - http://ths.gardenweb.com/forums/load/hvac/msg0909284227088.html

Here is a link that might be useful: Basement Humidity question

1) Only if money, health and comfort are important to you!

2) It is for liquid water penetration, which you don't have. (In any case, I prefer different preventatives.)

Our Code only mandates the first four feet. The payback is longer if you take the insulation to the floor. (I always do, by the way.)

The biggest source of moisture in basements that aren't actively leaking water is simply the condensation that occurs when the warm basement air hits the cold uninsulated walls. This promotes the growth of mould, which can endanger health and the destruction of the building products the mould feeds on--wood, drywall etc.

Some other things you should do to avoid moisture damage when finishing your basement: insulate the water pipes, hot and cold, put the plates for your walls on an inch of XPS and don't put the drywall to the floor.

Here is a link that might be useful: Designs that Work in a Cold Climate

A note for those of you wanting to insulate using XPS foam--get lots of glue. Make sure it is safe for foam--i.e. polyurethane glue. Don't buy the little tubes--buy one of the quart sized guns and get the big tubes. Use an electric gun if you can. We went through a lot of glue. Probably two tubes = 3 or 4 sheets glued. Our wall was old and uneven of course, but we found it much quicker to go crazy with the glue and not worry about the board setting up.