No it shouldn't smell, but that's what I'm saying, your seeing it in a raw state now. If it was finished using Mike's methods and had cross ventilation design into it, well that would be a different story altogether.
I think the biggest problem that house/basement has working against it is the hill on the uphill side. All the water that lands on that upside will run down to the house/basement. - yikes!
If you use Mike's ideas you would need to cut into the hill just above the house (uphill side) removing that soil and cutting the land so it will drain away - like in this image of Paul's -
But of course your house would look more like the modified version posted below -
That's your biggest concern, the up hill contour of the land.
So the questions become: Can you excavate the up hill side? Can you finish off that basement so it is watertight?