Our idea is to 'double strap' the exterior. First, the siding is in excellent condition and is the masonite type that was fairly common in the that time period. We want to run horizontal 1 by 2 strapping about 24 inches apart top to bottom on the exterior. Then on top of that put vertical 1 by 2 strapping screwing this strapping into the vertical house studs (and through the newly installed horizontal strapping).
Then spray closed cell foam about 1 inch thick against the original siding. This would leave about a 1 inch air gap behind the newly installed permanent siding. Also by strapping in two directions we would reduce the thermal bridge problem.
All ideas on this concept are welcome.