No vapour barrier is required. But fg insulation, faced or unfaced, is a bad idea, unless there is a layer of extruded polystyrene or expanded polystyrene or closed-cell foam insulation against the interior wall first. The R5 exterior insulation will not keep the interior of the foundation wall above the dew point--especially at the key above grade portion. If there is only fg insulation on the interior, water will condense on the wall and eventually a mould/mildew problem will arise.

Here is a link that might be useful: Basement Insulation Systems

Wouldn't the layer of foam board be a vapor barrier?

It's semi-permeable. Using fg against the interior wall will result in water in the fg as the conditioned winter air hits the colder wall, especially in the above-grade section of the wall.

Here is a link that might be useful: No poly below grade.

bbgamer, you seem to be saying that you already have the R5 foamboard insulation on the interior wall. Based on my understanding, you're fine. I understand extruded foamboard keeps the moisture above dew point. (Or am I missing something, worthy?) Anyhow that's my understanding.

If so, just frame the walls and install more fiberglass (unfaced) to add extra R value.

From their website (interior portion of this system):
The Dow® Styrofoam® rigid insulation boards.
The water-draining boards add insulation and further protection from ground moisture. In the early 1900Âs, The Dow® Chemical Company invented a process for extruding polystyrene to achieve a closed cell foam that resists moisture. This Styrofoam® brand insulation was awarded "Best in Class" in the rigid insulation category of a 2006 survey conducted by Custom Builder Magazine. (Note that this is not the same material commonly used for beadfoam coffee cups.) The boards drainage grooves are specially designed to channel ground water down to the drain tile and to wick moisture away from the foundation walls. Unlike fiberglass which retains water, the rigid extruded polystyrene polymer boards easily shed moisture. The boards give added protection to the TruDry waterproofing membrane, and they maintain the nearly original R-5 thermal efficiency value even in wet environments. In sum, they give far better drainage and insulating value than beadfoam or fiberglass.
Trained, Qualified Professionals

No, the vapor barrier is on the outside of the house. I was told by others that foam board was not needed for the inside but to use unfaced FG insulation between the studs. The studs were to be at least 1 inch from the inside wall so moisture will not be absorbed. I was told that foam board wouldn'd be necessary if I allowed the 1 to 2 inch air space. If I were to put the FG against the wall it would absorbe moisture. If I were to use the foam board it would be a double vapor barrier. I read the reports but am still confused.

Let me first say that I am not a professional in the insulation field - just a guy with a science background who recently finished our basement (and a couple others) and also worked on replacing mold-damaged walls in other basements. I became very concerned about understand the reasoning behind all this. I had been in my fair share of "musty" finished basements, and I absolutely wanted to avoid this in ours (so far so good after one full year).

When they say not to have a double vapor barrier, they're talking just about the inside, i.e. you don't have a barrier on the bare wall and then put plastic over the studs before adding drywall - don't do that (apparently some code still calls for putting plastic between the drywall and the studs). You want to avoid trapping moisture in the wall/stud cavity that would lead to mold, rot, etc. It needs to be able to "evaporate to the inside" even very gradually through the walls themselves, if moisture were to get in there. So, if only one moisture barrier is going to be used, foam on the walls appears best. Why? Because it keeps the stud cavity above the dew point, so moisture-laden interior air doesn't precipitate behind your walls (like it could on a cold bare wall in the dead of winter, for example)

It appears that website you mentioned does add/offer the solid foam (you could spray on the foam, also) on the interior foundation wall as part of their solution. Why? Because it helps keep the wall cavity above the dewpoint, again so moisture-laden interior air doesn't precipitate onto cold surfaces that might be there if there were no foam. (As for moisture being trapped within the actual foundation wall - who cares - that's not going to do anything. It's probably got a certain amount of moisture inside the thickness of the concrete to begin with.)

BTW, since we're in the middle of minor cold snap, how cold do your foundation walls feel to the touch (especially the portion above grade, if any)? Just curious. It's hard for me to believe R-5 on the exterior would do much in a deep, protracted freeze (like we used to get in the old days, anyhow). (I originally from Philly. Whereabouts are you - upstate?)

More on the subject:
http://www.nachi.org/foundationinsulation.htm

I should have used the word "condensation" instead of "precipitation" in the above post. Sorry about that.

homebound, Thanks, I think I understand better with your explaination of the double barrier. Thanks