I was thiniking about going this route. The pressure treated wood overhangs the block by about 1/4"-3/8" (haven't actually measured this yet). To avoid making the ledge larger, I was thinking about using some furring strips to just fill in the 1/4"-3/8" gap and then drywall and finish with baseboard. This would make everything flush, but the drywall screws wouldn't have much wood on the furring srips before they hit block. I'd have to figure out a way to attach the drywall...maybe just attach it at the top and then attach the baseboard using finish nails through the trim, drywall, and hopefully ending in the furring strip before it hits the block?
east_tn_emc - nice job on getting a finished look. I may do something like this if I can't figure out a good way to trim it out.
If I do get it trimed out with furring strips, would I still potentially have issues with moisture? One of the walls does look damp after a good rain, but I've never had actual water come in. If I did the furring strip method, would it also be necessary to use dry-loc like east_tn_emc did?