Framing a wall below grade

[sbitel]

I have a house built into the side of a hill. Three of the four basment walls are cement block construstion and below grade. I want to stud these walls out and complete the interior.

My Questions:

1) Should I stud right up against the cement blocks or leave an air gap?

2) What kind of insulation should I use, fiberglass batting or solid?

3) Is covering the insulated wall with 6 mil. plastic before sheet rocking a good idea?

[Builder]

What we generally do is hold the walls out at least a half of an inch and depending on the quality of the concrete or block sometimes more space is needed just so that your walls are straight and plumb. What i am saying is that you need to leave yourself room to compensate for a wall that may be bowed in and not plumb or even straight accross the bottom. As far as insulation assuming you are using at least 2x4 walls, we just use fiberglass because since it is below grade it should be plenty. Personally i would not use a vapor barrier in a basement. I can't give you a real reason why not i just don't like it. Hope this helps