Hello ~ it's been great reading through older topics, and I appreciate everyones expertise and input.  I thought I'd throw out my situation and see if anyone has any thoughts.

I live in an old home (1940's) with poured concrete foundation in the Albany, NY area.  The basement (which is not livable) is also the garage.  The basement gets wet when it rains.  It appears to be coming up from the seam between the wall and the floor.  We plan on installing a french drain in the future to reduce hydro pressure, but for now we've decided to not put this in our budget.

My primary problem is insulating my basement/garage combo.  I am quite selfish and would like to maintain the garage function of the basement because I do not like scraping snow and ice off of my car in the winter.  But what this does, is twice a day, I open a huge hole in the wall and let what little heat there is escape.  So, does all the sealing of the gaps and re-insulating the sills (taking out the disgusting fb and replacing/sealing with XPS) make sense?

To me, it makes sense because even though the heat escapes twice a day, for the majority of day and night, I want to be sure that heat is not escaping through other channels. 

I plan on placing two layers of 2" XPS (with advertised R value  = 7.8) in the sill boxes with spray foam around.  Should I use caulk instead of spray foam?  My garage door is wood, I plan on adding rigid insulation to the back of each panel... does this seem acceptable?

Any other ideas or thoughts are much appreciated.

I also meant to add that I intend to paint the walls with that paint barrier that claims to withstand up to 12 psi water pressure. Any thoughts on this?

The 2x/day big air exchanges is an exceedingly small amount of heat compared to constant leakage through uninsulated walls & doors and leaky sill/band-joist.

If you're doing it on the cheap, EPS (bead board) is a viable alternative to XPS for wall insulation here, but stick with un-faced versions to allow drying to the interior, no matter what you goop the concrete with as a sealer. All foam insulation will need 1/2" gypsum or similar thermal barrier. If you're not controlling the humidity in there mechanically, be sure to use a mold-resistant variety. The gypsum can be mounted to furring strips through-screwed to the masonry wall. Paint only with a permeable or semi-permeable paint (cheap latex works), or leave unpainted- your choice.

R10 - R14 insulated garage doors are available, and well worth it for a garage under a house.

It'll likely stay above 60F most of the time once you've insulated & sealed it all. It may cut your heating bill by 15-25% or even more (depends on a whole lot of other factors.

Hopefully you've air-sealed well between the garage & conditioned space very well. As you tighten up the garage, you could potentially run into unwanted air communication with fuel vapors & exhaust that was previously well-diluted. It's nearly impossible to seal a garage completely, just be sure that you isolate it from the living space very well.

Ona,
A couple thoughts on your basement water problems. (I'll let Dana handle the insulation questions.)
Do you currently have a sump pump in operation in the basement? If not how do you deal with the water that enters this space?
If the water is entering at the cold joint between floor and walls, and you have no leaks in the walls themselves, then a baseboard channeling system (ie. basement dewatering systems, www.bdws.com) may well be your most economical solution. I believe that some of these systems are diy. No concrete removal nor digging, as is required with french drains.
FYI, those water barrier paints you mentioned, may stop water seeping through the walls, but they will not stop water penetrating at the cold joints.

Thank you both for the quick responses.

Dana1 ~ I was hoping you would respond since I've seen how knowledgable and thorough you've been with other responses... thank you. I have already sealed all the gaps from the basement to first floor that are obvious. I was not planning on insulating my basement walls, rather just the sill box at the top of the foundation for now. Do you think it's still worth it to start this winter with the sill box and work on the walls later? Also, when you recommend unfaced rigid insulation, I expect the stuff that I was planning on using is out... I was looking at 2" rigid with foil faced. Do you recommend that I get it without the foil even for the sill box?

Wes ~ thank you for responding to my water issues and sharing that link with what looks like a fairly simple system. We do not have a sump pump. We don't normally get enough water for flow, its typically just wet spots at the cold joint, sometimes all along the cold joint. Rarely, we've gotton some flow (~3 times in the past 7 years). When that has happened it can flow out through the garage door typically helped along with some brooms.

Thanks Again!

If you use foil faced iso or poly-faced EPS on the walls the ground moisture will wick into the sills and they'll rot(!).  3" unfaced beadboard (EPS) will have the same ~R12-ish insulation value, but will allow the foundation to dry inward (rather then upward).  (I used fiber-faced 3" iso in my fairly damp basement, and when I pulled a chunk to re-locate a drain this fall there was no evidence of any mold- it's drying to the interior just fine, the sill & band joist look fine, all is good.)

Dicing up foil faced iso for the band joist is OK as long as you don't have foil faced sheathing on the exterior walls. Be sure to foam/caulk the seams for best effect.  It's best to foam-seal the joints prior to insulating it, and often it's just as cheap (and a lot less labor) to go ahead and just insulate it with foam at the same time, depending on just how much you need.  Figure on 1" thick spray foam for R6, 2" for R12, and count up the board-feet (1" x square feet) to figure how much you need.  If its' close to any of those those handi-foam tiger-foam goo-goo foam whatever closed cell kits it could be few hundred well spent- reducing the time to an hour or two, not days, with greater assurance of a good seal. (100bd-ft kits run ~$250, 200bd-ft ~$350, delivered.)  A 1 car garage would likely only need ~100 board feet even if it had foundation sills to seal on 3 sides, but measure what you've got, read the installation instructions for these kits & decide.  If the rigid board is already up you can seal/insulate right over the interface.