You have what is called a "balloon frame" house. Now that you have opened up the wall, you have essentially opened a can of worms so to speak. To comply with modern codes, and for your own safety, you should put in fire blocking between each floor. Without this fire blocking, if a fire were to get started in this house, the wall cavities would act like chimneys spreading the fire very quickly.
The last TOH project house was a balloon framed house. You can view selected episodes on this web site to see how they tackled it. Your biggest problem here is that modern dimensional lumber is smaller that the dimensional lumber used in your house, so every piece of blocking will have to be custom ripped to width as well as cut to length.
For batt insulation, I would suggest that you get the 24" batts and cut them to size using a chef's knife. Try one of those ceramic knives you see advertised on TV, you can get them at Walmart now. I learned the hard way not to use one of those to cut Brownies up into squares in a Pyrex baking dish, they cut right into the glass, so they should be good at cutting insulation. A steel knife has a very hard time cutting glass.
Use the left over strips for cavities around window and door frames and/or in the attic.
I'm in a simular situation as the original poster but am still a little confused on the details that Keith provided. So I have a couple questions that hopefully someone can answer:
1) Did Keith mean to install the unfaced batt in the wall and then put the foam board on the outside of the studs, that is.. like mounting the foam just like drywall, taping it up, and then mounting the drywall on top of that? Or did he mean to cut the foam and slightly compress the batt and mount it inside the wall?
2) What do y'all think of this method... A) Use closed-cell spray foam to only spray the edges within the 2x4 framing to close air gaps. B) Then use unfaced batting and C) install a standard vapor barrier before drywalling?
Thanks for your time and consideration everyone!