My house is set into a hillside, built in the 60's. 5 years of summer drought caused the foundation to settle and crack. The basement was finished with furring strips nailed to the pored foundation, 1" fiberglass insulation. Covered with 3/8 plywood and that lovely panneling. Any wall covering will mildue and grow mold if allowed to get wet. Also, it will attract termites and other bugs. They will eat up any paper or wood items in your garage. Also your tools and other metal ie. cars, motorcycles, lawn equipment will rust up. To fix my basement, all the walls were removed, the cracks professionally repaired with a flexible urethane product and the walls were then painted with Dry-lock waterproofing paint. Outside new 5" wide gutters and the largest downspouts were installed (still doesn't help much as the new leaf guards get covered with leaves and the water goes over them). Rather than having the drain tiles replaced ( backhoe, tear out gardening & $20,000.00) I dug 2 ft. deep ditch at the gutter line all around the house, lined it with heavy duty plastic. Put in 4" slotted drain pipe with silt sock. Covered this with gravel and piled the dirt against the foundation sloping to this ditch. I left the basement open for a year before putting in 2 x 4 stud walls (pressure treated sill plate). I covered the floor with a vapor barrier cushioned underlayment and covered with engineered click wood flooring. So far - so good. I think the best solution to my problem has been the drain pipe and sloping the dirt away from the foundation. It has been a particularly rainy summer and it has not even been very humid downstairs. Good luck with your project!