I'm stopping by to see what people think might be the solution to the previous owner's "solution". I've got a garage with wooden walls that is butted directly up against an area of yard graded 2.5 feet higher than the garage floor. That patch of yard is contained with a retaining wall. We knew something was up after the first rainstorm and watched a flood of water pour in through the floor molding on the side that touches the retaining wall. I was advised to open up the drywall to get a decent look inside, and now we know that it's been rotting for years. Since we're not able to regrade the yard outside, does it make sense to replace the portion of wall/siding with a sealed/tarred cinderblock wall, and then reinstall the siding onto the shortened/replaced studs? I've seen similar posts that have recommendations featuring all-wood solutions, even when below-grade.
You can go cinder/concrete block or poured concrete as you suggest, or you can use suitably treated wood (rated for ground contact, not merely "pressure treated") as is used for all-wooden foundations - as you prefer.
In either case, you should install drainage to remove water outside the wall when you have access, because even a "waterproofed" wall works a lot better when it's not fighting pressure trying to force water in.