Insulation, Radiant and Vapor Barriers - Insulation for garge converted to bedroom

We have a daylight basement heated by woodstove. At one end of the basement, (not underground) is the garage. The walls are cinderblock, covered with acoustic type wall (like drywall) which is 1/2 to 1 inch thick. The celing is going to be a drop ceiling, and has another a bedroom over it. The floor is concrete. We will be replacing the garage door with a french door.
It does get damp, but I don't think there is much water seepage.

What kind of insulation should I use to insulate the walls? I don't think we will be insulating the ceiling as the heat from the woodstove can migrate through to heat our bedroom as well.

And do I need a moisture barrier?

Thanks

Moisture issues should be addressed before beginning the project and don't forget to check in with local authorities regarding permits, building code requirements, and inspections.

Helpful basement waterproofing info can be found at http://www.waterproofing.org/

Rigid foam insulation tends to be popular for below grade installations because of its water resistance.
http://www.mme.state.va.us/de/energybook/hbchap3.html

Make sure soil around the home slopes away from the foundation to carry away excess water. Make sure gutters and downspous are clear and carry excess water away from the foundation. Controlling excess water around the foundation tends to minimize moisture problems.