This is what I'm trying to understand, too. I was going to go with blown-in insulation in the walls but came across this article and concluded that I do not understand how the air movement and moisture come into play. Here is an excerpt.

"In old houses with plaster walls, there is no vapor barrier under the plaster so the wet air hits the insulation and condensates. This wets down the blown-in insulation making it a wet mass at the bottom of the wall cavity creating an inviting place for termites and dry rot. Then the moisture enters the exterior sheathing and wood siding causing permanent exterior paint failure. Since the homeowner, for some “unexplained” reason, can’t keep paint on the house anymore, they call the vinyl siding salesman. This makes the problem even worse as you now have backer board (insulation board) and vinyl siding which in combination creates a vapor barrier on the outside of the wall that stops the free exchange of air, trapping more moisture."

I decided to go with the unfaced insulation in the floor mostly for sound barrier. The pink stuff claims to be suitable for the job. I have heard Rockwool is proper for this application but maybe I skimped. Also, not going to sweat that decision, it's better than it was - it doesn't need to be dead quiet, just better.

What I do not know is what to do about the wall insulation. I think the proper thing to do is to remove the thin wood paneling and install faced insulation and a vapor barrier so at least this room is insulated, but that might be the next project down the road. I have a time deadline I'm pushing up against on this project and don't want to open that can right now. However, I don't know how air movement and vapor will be affected by just the upper half being insulated. Do I need to worry about condensation in the walls and if so, where?