I recently had a contractor come by to give an estimate on removing some luan paneling that was installed by the previous owner and replace it with sheetrock. He mentioned that since the walls will be exposed that we should put in insulation in the exterior walls. I seem to remember reading somewhere that without a vapor barrier the insulation will get waterlogged from the condensation and that it will rot out your walls. He told me that the insulation has a vapor barrier on one side and you just have to install it in the correct direction to avoid the condensation problem. Is this correct of should I be asking more questions? I would hate to have my walls rotting out a few years from now.
Insulation does typically have a moisture barrier on the side that goes next to the sheetrock. You should definitely insulate when your walls are open. You will pay for the cost in energy savings in relatively short order. You will notice a difference in comfort too. Be sure and insulate the coverplates as well.