Originally Posted by WWPierre
Yes, of course that is why I specified ventilation of the finish assembly. As for the lack of firestops, Antipode12, in the event of a fire in the basement, the heat would quickly concentrate at the ceiling, and there would be no opportunity to initiate the chimney effect.
In any case, You have decided upon the very best course of action: to intercept the water before it hits the wall. Once you have done the remediation, and monitored it through a few "high water" events, as long as there is no sign of dampness, you could slap up 1x4s or 2x2s (or whatever) strapping on 16" centers and hang whatever finish you want.
If there IS any dampness, (moisture in the soil can wick through the concrete blocks, which is why basements are usually cool) put your strapping on vertically, hang your finish paneling leaving a 1/2" gap top and bottom, then space your baseboard 1/4" above the floor, and disguise the gap at the ceiling with a crown moulding spaced 1/4" down. That way, air can circulate between the damp wall and the finish paneling, taking away moisture before it can accumulate, causing a chance for mould to grow.