If you don't want to invest in sheetrock or paneling, perhaps you could stretch some attractive fabric over the studs and staple it. Pick up some cheap material at some closeout outlet. If you get bored with the pattern or color, just change it.
here is how we do block wall basement finishing - in almost 30 years i have never had a callback or any complaints about leaks after the fact. you do have to make sure the foundation is in good shape with no failed blocks or footings.
1) hire a foundation waterproofing company to come in and shoot urethane foundation sealer (blueseal is what we use. like drylok, but cheaper and better - thicker coating in non retail 5 gallon pails). you can also do it yourself with a drywall texture sprayer set to the smallest orifice. you can use anything you want, but it needs to be silicone or urethane.
2) before it dries (just follow the installer around), throw big handfuls of chopped fiberglass (check in your area for a fiberglass supplier - its cheap and abundant). make sure you coat everywhere as much as you can.
3) once dry, spray again. dont worry if you miss a reapply window as the chopped glass acts as a mechanical binder.
4) insulate with mineral wool insulation. it can get wet and it wont grow mold. it also self-drains if it does get wet.
5) install an air barrier, not a vapour barrier. its important you do this step correctly. the urethane sealant has sealed the wall cavity from the outside, but the blocks still act as a partial insulation void. you may get some condensation inside the wall, but it wont freeze. install the air barrier so that the printing faces the studs - this way the inside of the wall can breathe if it needs to. its the opposite way its normally installed, but its not designed for this purpose.
this approach works surprisingly well because the urethane/glass composite acts as a strong but flexible sealed barrier that resists fracturing in the foundation, and even if cracks form, the urethane can stretch to make sure the water doesn't get in. the air barrier trick is an old one, but it works really well in walls that may have occasional moisture.
good luck
Best Answer
Quick test: go outside with a mask and safety glasses, hold at arms length, fiberglass will melt and form tiny beads in a propane torch flame (or perhaps one from a butane lighter), asbestos will glow yellow or white hot without noticeable melting.
Pull a few strands out (while wearing a particle mask) and test them. Normally, I would not advise you going into a site with possible asbestos and disturbing it, but you already have entered it, and live there.