Insulation, Radiant and Vapor Barriers - Question about insulating basement

My 21-year old cape style house in New Hampshire has a 43-inch knee wall along the back of the house in the basement. This is because the ground slopes down from the front yard to the back. This knee wall sits on top of the sill plate and the 1st floor joists sit on top of it. This wall is not insulated. I have a finished room in the basement that accounts for a little over half the space. The walls in the finished area are insulated. The un-insulated knee wall along the back is not included in the finished portion and neither is either wall that make up the sides of the house. These sides have no knee wall, its concrete foundation with a sill plate on top of that, and floor joists on top of that. There is also no insulation in this area along the band joist and in the area between the floor joists where they meet the band joist. I replaced my boiler with a new one and it emits so little standby heat and jacket loss heat to the unfinished side of the basement that its much colder now. So I want to insulate the knee wall and along the band joists. My questions are:

1 - For the knee wall I was going to use fiberglass bats with kraft backing facing the inside of the basement. Apparently I have to cover this with sheet rock or some other wall material in order to meet code. I assume this is because the paper is a fire hazard. Would peg board suffice to cover the insulation?

2- For the band joist I have read that unfaced should be used and also that faced should be used. Which is it? Is unfaced recommended due to the fire hazard of faced?

3- Would I be better off with XPS in either location?

4- Does XPS have to be covered?

Thanks