Basement wall insulation

I'm trying to decide on the best approach to insulating a basement wall. I'm currently contemplating the following:
Option #1: Use 2 inch polystyrene foam insulation directly against the exterior walls and tuct tape it to seal it. Erect my 2x4 stud walls against this and drywall. Also, I could potentially insulate between the 2x4 walls with regular bat insulation to increase my R value.
Option #2; The old way, as defined by a contractor I spoke with. Lay out tar paper against the exterior walls. Erect my 2x4 stud walls against this. Fill the voids with bat insulation and vapour barrier the wall. Put up the drywall.
The first one obviously appears to be the warmer but is it more overkill ? I'm a little concerned about the loss of real-estate due to the added wall thickness but the extra heat & potential energy savings do sound appealing.
thanks,
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Mike Holmes did it this way. he even did the floor the same way.

Is the basement wall concrete or frame? I'm guessing concrete. I' ve never heard of using tarpaper on an interior wall. Given the two choices, I'd pick #1
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snipped-for-privacy@gmail.com wrote:

<snip>
Prime challenge in reducing the huge energy loss through basement is moisture-control. Exit-path, as in siding etc. upstairs, is essentially non-existent.
See http://www.buildingscience.com/resources/basements.htm and links within for discussion of ongoing research.
J
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snipped-for-privacy@sme-online.com wrote:

fibergalass poor choice in moisture prone area, R value drops to zip if wet...
best choice spray foam, costly but highest R value, self vapor barrier, stops air infiltration too.
be sure your basement is dry before remodeling
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