Spray foam would be the best choice as it would give you an airtight seal and if closed cell water proof also but it is more expensive than fiberglass.

Is what is there, keeping the drafts away? If it is, it probably doesnt need to be changed.

I'd be afraid of spray foam affecting air quality. I think that the old insulation has lost some of its "oomph" over the years. Not sure it was all that great in the beginning. I think the newer stuff is probably better -- more insulative.

No point in replacing fiberglass with fiberglass. Spray foam is the upgrade.

What I would do is pull the insulation out, bay by bay. Check for drafts/ leaks/ penetrations thru the rim joist. Spray foam (rattle can) all that you find and put the fiberglass back in place.

I'm not looking forward to cutting batts of fiberglass into the squares,

Not a big deal. Compress the insulation with a 2x4, etc. at the cut line and cut downward with a knife. I have a big butcher knife that I use.

+1 with cilantro. "New" fiberglass batts will get you nothing more than "old" fiberglass batts. The only improvement would be if it is squished in there or torn, or haphazard piecemeal, but installing new as an improvement would depend wholly on your workmanship.

The biggest issue is air sealing your rim joist area. If you want to do a deep dive, google "rim joist air sealing." The current thinking is using rigid foam board cut to fit in each joist space with spray foam or caulk of gaps.

Thanks I will google and learn about rim joist air sealing. It certainly wasn't done before. There is just the yellow fiberglass stuffed in there (and not even really stuffed -- sort of set in there. It's pretty gappy). Also, the paper side is to the inside. Someone told me that's wrong.

Building Science Corp.

Depending on your diy skill level, alternatively you can use eps spray foam kits. Building new, we have a pro do the rim joists that way. If you use spray foam, it must be protected by a fire/ignition barrier.