Insulating an old home that has sheathing

A homeowner with a 100-year-old house is renovating the foyer and living room and asked for advice on insulating the walls. The house has old wood plank sheathing, tar paper, clapboard siding, a deteriorating layer of foil paper, and aluminum siding over that. There's no modern water-resistant barrier (the layer that keeps water out while letting the wall dry), and the owner isn't planning to redo the siding. A previous owner had already filled the wall cavities with injection spray foam, which raised concern about whether the walls can still dry out properly.

The plan under discussion was to add rigid foam insulation board (around 3/4 to 1 inch of XPS foam) against the existing sheathing, then add mineral wool (rockwool) insulation on top, working from the inside during the renovation. The question was whether the old tar paper and crumbling foil layer already on the outside of the house would cause moisture problems when combined with this rigid foam approach, especially since the home's climate zone doesn't require a vapor barrier and thin XPS foam does let some moisture pass through.

This is a homeowner forum question rather than settled guidance, so there's no verdict here about whether the approach is safe for this particular house. Anyone with a similar old balloon-framed home with existing plank sheathing, aging tar paper, and no modern water barrier faces the same puzzle: how to add interior insulation without trapping moisture in walls that were built to dry a different way than modern construction. It's a reminder that older homes without a proper water-resistant barrier need extra thought before adding foam insulation to the walls.