I have an odd situation. I have a house built in 1958 with SOLID exterior wood walls. Yes, solid! No air space, no insulation. It was built by a company in the Upper Peninsula (Michigan). Thankfully, I don't think the idea stuck. The exterior walls consist of three 1x's laminated together, to form a wall which is only 2 1/4" thick (3/4 inch for each 1x). The R-value is around 2 1/2 to 3, at most, according to what I've read on the internet about solid wood R-value. I'm considering adding 2" of rigid foam insulation and installing new windows in the entire house. Polyisocyanurate seems to have the highest R-value...about R-14 for 2" from what I've read on several websites. This would bring my exterior wall R-value up to near code (R-19) for my area. My questions are related to the installation of this insulation:

1. What do I do for moisture barriers, if anything?
2. Do I tape the joints, or glue them somehow?
3. Should I put a layer of 1/2" OSB sheathing over the insulation so I have a nailer for the siding?
4. Do I put Tyvec housewrap over the whole thing before I install new vinyl siding?
5. If I bring the house out 2 to 2 1/2 inches further, will it look strange to have the foundation recessed that far, or should I bring the foam insulation all the way down below grade a couple feet?

Many questions...searching for answers. Thank you!