Any recommendation depends on your location - I wouldn't provide the same answer for Yuma, AZ as I might for Edmonton, AB.
When water vapor diffuses through a wall and reaches the exterior sheathing, if that sheathing temperature is below the dew point the vapor will condense. Depending on the amount of water vapor and the rate at which the wall cavity is able to dry out, this may lead to moisture problems.
Installing insulation in the wall cavity will help reduce heating costs, but won't address the problem of sheathing temperature. As a result, some builders are specifying 2" to 4" or more foil faced polyiso panels be installed outside of the sheathing to raise the temperature above the dew point. In these designs, some don't even advocate using cavity insulation. Vapor will still diffuse into the cavity, but it will not condense on the sheathing surface.
Installing foil faced polyiso on the interior of the wall, properly air sealed and with taped joints, forms an effective vapor barrier which will reduce the problem of moisture diffusing through the walls. However it may not solve all of the problems with vapor diffusion so it's quite possible to still have problems.
Additionally, while most people look to insulation as a primary solution for energy savings, often older homes would find greater benefit from air sealing. There is almost no way you can make an older house with plaster walls "too tight." In fact, the idea of houses being "too tight" is something of a myth. Your goal should be to have "managed ventilation" rather than the unmanaged ventilation common in older homes.
In my 1870's New England house as an "inside" solution I removed the plaster, installed fiberglass batt insulation in the cavities, applied 2" foil faced polyiso over the studs (for a thermal break and vapor barrier), with 1x3 furring strips and gypsum on top.
Yes, Rigid foam (XPS and ISO) boards are frequently used in exterior applications, and can be a great option for improving efficiency. There are a couple of issues with your proposed approach, though:
- Vapor barrier location. The vapor barrier should be on the warm side (probably inside, unless you live in a very hot & humid climate). Ideally, this is immediately behind your interior drywall. You also do not usually need an extra vapor barrier layer adjacent to rigid foam sheets, they are typically highly resistant to moisture.
- Attachment. You cannot rely on glue to support foam and siding panels. These need to be mechanically fastened.
On a wood frame house, you'd want to use this order:
- interior drywall
- possibly a vapor barrier (e.g. poly sheeting), though the wisdom of this is debatable (see the comment from iLikeDirt below)
- wall studs (optionally with batt or cellulose insulation in between)
- exterior sheathing
- rigid foam
- wooden strapping for attaching siding, screwed to studs through foam. This provides support for the siding and also allows air circulation behind the siding, so any moisture that gets behind the siding can dry out.
- siding panels, nailed to strapping
Here's a visual from Fine Homebuilding, which has a couple of good articles on this:
Note that adding foam on the exterior of your house complicates some things. You will likely need to redo the trim on your windows and doors, which will become more in-set. These inset areas will need to be flashed properly or you will have leaks, which have more potential to do damage when you've got multi-layered, thick walls that could trap moisture. If done well, you can get very good insulation. But make sure to work with someone who knows what they're doing!
Best Answer
Although it is technically possible, doing so will be a waste of time and money. The radiant barrier itself is only effective if it is facing open space; if one side is touching the wall and the other is covered in fabric, then there is no benefit. The bubble wrap itself has an insulation value of maybe R-1, so it will offer very little insulation for the cost and effort required.
Even if you leave the foil exposed on the interior side, the added benefit is pretty small. There are very, very few scenarios where a radiant barrier provides cost effective insulation compared to traditional alternatives.
In your case, assuming you're in the US, I would recommend contacting your local Weatherization Assistance Program. If you have a very limited income and a house with no insulation, it's likely you'll qualify to receive significant insulation improvements free of charge.