Should the plastic vapor barrier be removed from under or replaced under exterior wall drywall? I am working on a house which had major termite damage. The house is located in a town in upstate New York (Erwin) where termites are not common. It is believed that the moisture in the exterior walls either caused or contributed to the termites entering the structure. The structure of the wall was drywall, plastic vapor barrier, paper backed fiberglass insulation, OSB board, 1" blue board, Tyvek vapor barrier and vinyl siding on 2x4 studs. The plastic vapor barrier seemed to hold the moisture in the wall and the termites set up shop under the plastic and ate the studs and paper backing. They also ventured out in tubes through and under the drywall. Not all of the walls were damaged. We are debating on if we should remove the plastic from those walls as well as if we should not replace the plastic on the walls we have repaired.
And this is why you don't put vapor barriers on both sides of a wall
Your problem is that you have a vapor barrier on the inside (the plastic right under the drywall) and a vapor barrier on the outside (assuming the "blueboard" is a foamboard product, that is -- if not, the housewrap may also be acting as a vapor barrier in this assembly). As a result, whatever water gets into the wall has utterly nowhere to go, and you get a termite party in your walls because they have all the things they need to live. (Apparently the termites beat the mold to the punch in your case.)
Remove all that interior plastic so that the stuff inside the blueboard/housewrap can dry to the inside. Also, be glad you're fixing this now, and not in the middle of cooling season after the air conditioner aggravated your water woes. See BSI-073 for more details about why vapor barriers are like badgers.
Yes, remove the poly sheeting on the inside of the wall. I can’t think of a circumstance when you would want it.
When we come across poly sheeting on a retrofit we always remove it or slash it with a knife before re-installing the drywall.
With poly sheeting, VAPOR will move into the stud space...no matter how good you tape the edges and joints of the poly sheeting. Once in the stud space, it can’t escape back out when the seasons change.
+1 for @ThreePhaseEel for linking to the Building Science website.