Treat the existing as a rain-screen and build a weather-tight enclosure from the inside... similar to a blind-side foundation waterproofing assembly. The cladding and studs have lived well up to now, it's dangerous to play around with it's drying "habits" so to speak.

Depends on a variety of things.  Your climate is a big factor.

Random solution:  leave the existing siding and framing.  It's a rain screen (make sure it can vent).  Build new "wall" at interior face of existing framing with wrb, insulation and framing.  Then decide if you actually need/want a vapor barrier. 

I've not ever done this and cannot vouch for its effectiveness. 

HA! excellent Non. 

Thanks non and john. That's kind of what I was thinking. The existing studs and siding already dry themselves well so I don't want to change the existing condition. Was thinking I could do rock wool insulation between the studs without changing the drying behavior too much, then wrb on the inside of the studs, then finish on the interior side, maybe with some furring.

^ consider extending the roof overhangs to keep the rain away.

Nice one Senjohn.

8-)

I've done what Non Sequitur and Senjohn suggest, almost. We partially furred out the cavity as if it was a vented roof, as you only need a space of 1 1/2" or so for the sheathing to dry. Depending on climate I would likely not use closed cell foam, if there is any danger of the sheathing becoming wet. I would either furr the framing horizontally to the interior, or build a separate stud wall on the interior, depending on what R-value you are going for.

Then I would dense-pack with cellulose as it's very forgiving of imperfect moisture management. Mineral wool could also work, as it's not affected by moisture, but cellulose actually protects the framing by acting like a sponge, whereas mineral wool leaves wood framing to be the sponge.

If you are adding framing of any sort to the interior it's a good opportunity to use a high-quality, vapor-variable membrane (aka "smart" vapor retarder) as an air barrier and vapor retarder. If you put this membrane toward the center of the wall assembly you can leave yourself a service cavity, which makes running MEP while maintaining the air barrier much easier. 

^ Agree....you are overthinking it.

Weather barrier does not equal air barrier.  Nor does Air barrier always equal vapor barrier.  We don't really know if the OP even needs a vapor barrier. 

When I was a contractor I loved following architects like you guys. Mold, rotten framing, etc. Water gets through even the best-detailed siding, unless you live in a place with no wind and somebody does a thorough caulking job every few years, which does not happen. Vapor barriers have been "out" for several years now, as they just trap moisture in the framing cavity. Weather barriers make terrible air barriers, as a rule.  

I don't intend to sound mean, I just deal with a lot of projects where the builder or architect said exactly what gruen says above. Most recently, a woman with Lyme disease and her husband bought a 10-yo home, which the builder had not detailed well. The entire house had to be gutted by an abatement crew, but the damage was too much to repair, so they had to declare bankruptcy and let the house go. Now we are trying to figure out how to get them into a well-detailed house that actually takes moisture management into consideration, as her immune system is severely compromised she can't live in most existing homes. Difficult as their formerly perfect credit is now ruined.

Admittedly, that is an extreme example, but I've done hundreds of renovations and almost all of them have moisture damage and mold of some sort, and it's simply not necessary with the advances in building science over the last 10-20 years. It does require keeping up with current best practices, which takes time and effort. To say "it's just a house" is lazy; it's part of an architect's responsibility to ensure that the home is safe and durable.

Adding a vapour retarder as a default renovation solution tends to peel brick off of buildings in my area. Too many hipster sidewalk cafés have been lost.

Wood Guy, SenJohn and Non, thanks for your help. I think we're going to go with something similar to WoodGuy's first post. Not concerned with vapor as much as water and air. I don't want to disturb the existing condition of the siding, sheathing and studs since they are basically acting like a furred out rainscreen at this point, like non said above.

For gruen, it's not a house, it's a carriage house, aka big garage. The siding is definitely not keeping the water out and the windows and doors are warped, broken or otherwise unusable and will be replaced.

Smile of Fury (great name), even with the basic approach above, like everything else in designing and building homes these days, there are traps waiting for you at every turn regarding detailing and materials you use if you want to ensure the walls perform well over a long lifetime. You asked for reading suggestions:

This is my favorite; dense with information: http://www.amazon.com/Water-Buildings-Architects-Guide-Moisture/dp/0471468509.

This is also great (with other available for different climate zones): http://www.amazon.com/Builders-Guide-Cold-Climates-Comprehensive/dp/156158374X.

This is a government program but despite that they have a ton of great information, including a lot of reports from studies done by BSC and other building science researchers, and energy modeling programs: http://energy.gov/eere/buildings/building-america-bringing-building-innovations-market. 

You're going to replace windows and doors but not the leaking siding?

I think I've heard just about everything now. 

Thanks again, Wood Guy.

Miles, how is this any different  than replacing windows and doors in a wall that was designed as a rainscreen? What if this siding was a very modern looking cedar with 1/2" open joints. Could I never put in a new window?

If the siding isn't keeping water out, why do you need to fix the windows? 

I think that's pretty well explained in the well thought out and informative questions and answers above.

The existing studs and siding already dry themselves well so I don't want to change the existing condition. 

The skin of the building is supposed to protect the structure as well as the interior. When you add construction inside you will alter the conditions of the structure that allow it to 'dry' (not that routine cycles of wet/dry are good for construction lumber).

As gruen said, and as you shrugged off,  

Unless there is already water going through the siding, in which case you have a different issue.

Ok, but I still agree with the three other guys. If I consider the siding and existing studs as a furred out rainscreen I should be able to create a detail that allows me to waterproof the interior space, new windows and all. If I can leave the siding and studs untouched I basically have a 5.5" air gap that allows everything to dry out the same as it has been doing.

SoF, if liquid water is regularly soaking the framing and sheathing, that's a different situation then a bit of water getting through a few times a year. Ventilated, gapped cladding requires a drainage plane and a nearly perfect WRB. The project where we did the internal rain screen had board sheathing, tar paper and wood shingles in good condition on the exterior, so it kept the vast majority of water out and could dry if it did get wet. (Tar paper is actually a decent WRB, it's just not an air barrier and they don't spend money on marketing.)

I once designed a renovation for a historic preservationist, and in one area the clapboard siding was allowing a small amount of water in during any significant rain storm, and I pleaded with him to let us take off the siding and add a proper WRB. I was younger and caved to his wishes to preserve the exterior, and we installed mineral wool in the cavities and wood boards on the interior, so the assembly was very vapor-open and could dry, but even now, almost ten years later, I still think about that project often and wonder just how much rot and mold is happening in there.

The devil is in the details. Cladding never keeps all the water out, but like Miles said, "the skin is supposed to protect the structure." If the skin of your project is letting liquid water in, you really need to address that issue before you cause bigger problems.

"I basically have a 5.5" air gap that allows everything to dry out the same as it has been doing." Except once you introduce insulation and an interior air barrier of some sort (typically drywall) then the walls don't dry out the same as they always have. There are various "levels" of rain screen. At minimum, it's a capillary break of 1/8" or so, but that doesn't really help a wall dry out. For that, you need a bigger gap and air flow. Your system has the bigger gap, but no air flow. If the wall was not taking on water you would probably be ok without the air flow. If it is taking on water, you need to stop that from happening.

Sorry I muddied the waters by saying it could be done. It can, but it sounds like your situation is not a good candidate.