I've sealed and insulated the band joist at the top of my basement level, using 2" XPS foamed in with Great Stuff. In the completely unfinished portion I friction fit drywall over the foam and caulked it in; there's also a semifinished portion where the foam is currently exposed but a ceiling will be (re)installed. When I completed the sealing using caulk in areas where it was too busy to cut & cobble foam or where there is copper pipe which may be moved I could feel significant cold air blowing in.

Now I realize that the band joist is at or below grade (grade varies from about the mud sill to about the top of the band joist), with brick veneer over the wood. I saw no indication that the wood had been wet, and in the past when we've had water coming through the CMU wall the wood was still dry. (We've since addressed the water issue by grading but that put the joist further below grade). I just looked at the outside where the water issue had been worst and where I most recently installed foam, and the bottom course of bricks looks wet.

We are getting ready for an energy retrofit which will wrap the brick in foam and eliminate the oil guzzler which keeps the basement warm and dry in winter. I had thought about extending the foam to about a foot below grade and installing a underground roof with French drain to catch more of the surface water which runs off the neighboring property.

Did I make a big mistake putting up foam on the inside? I'm worried that any moisture that gets to the wood won't be able to dry. I could take a ~6" hole saw to the foam and remove a couple plugs per bay to expose a lot of the wood; I wonder I there are metal sleeves available which I could slip into the holes to maintain the required barrier. Or maybe I need to pull it all out and just caulk the seams.

Thoughts?

Really isn't a good idea to put wooden framing below grade; all kinds of nasty things happen. You need to regrade again, only this time start BELOW the sill level.

I agree that it shouldn't have been built that way but I don't know how to go back to 1960 and try to convince the builder of that. The band joist has survived 55 years in this condition with no apparent damage; I don't want to make it worse and I'd like to make it better but a massive regrading would be problematic.

"Massive regrading" is not necessary, but getting water away from your wooden home is, despite whether the original builder does it or you do. My home was built in the 1800's, so there was even less chance of having the builder regrade. It, too, had lasted. But I needed to do something so I dug out an area extending 2-3' away from and a few inches below the foundation, installed a landscaping drain just below the surface, washed stone on the surface and landscaping timbers at the lawn's edge to keep the soil out & direct water away from the house. Still works great after 30 years and the house is dry.

OK; gravel and a drain makes a lot more sense. I was envisioning lowering everything a foot or so without disrupting surface runoff patterns.

I'm guessing that if we add foam over the brick I'll still need to make the wood able to dry inward.

There is a little more to making the drain: line it with heavy poly, roll roofing or something that will contain water, install a 4" perforated pipe, fill the trench/cover the pipe with washed stone & take the pipe - either level or slightly pitched to daylight. make sure when you are all done you are below any wood in the wall. then, keep leaves and weeds from filling the trench and starting the process all over again.