Assuming that your house is on a crawl space, I would expect that the beam has powder beetle rot. If you are on a full basement, this is less likely. I'm wondering if you had a home inspection? This only happens if the space is too moist. If it's going to be repaired, the underlying moisture issues must be dealt with.
Cob is not very thermally efficient. If your walls are empty the most economic and probably greenest choice, would be to blow in cellulose insulation which is made from used paper. If the drywall is in very rough shape, a new thin layer could be put right over top of the old, after the insulation is blown in.
Some parts of Ontario have issues with radon gas. I know there have been problems in Owen Sound and in Collingwood. If your basement or crawlspace is undergoing renovation, be sure to check out what can be done in that regard. I'm not sure if there are still government grants available, but it's worth checking out.
I don't see anything seriously wrong with the exterior. Those shingles are probably Cedar, and if cared for they will last the life of the building. Edit. I'm doing this on a mobile phone. After examining the photo , I see that it's wood siding and not shingles. It doesn't look rotten to me. I would use a good quality, breathable paint. Your overhangs are not very large, so it will be important to always keep an eye on the quality of
drip edges and in the flow of water generally once it reaches the ground.
I wouldn't do any of the things that you suggested, to the walls, on the interior or exterior. They are already conventional stick frame walls. The most economic way to deal with that is with insulation, paint and drywall repair.
One more edit. Lead paint was very common at the time when this house was built. It's quite likely that the exterior has lead paint. If any scraping is done, be sure to use lung protection and to capture the little bits that are scraped away. The best way to deal with lead paint is to completely encapsulate it, with a compatible new product. I would not grow anything edible within five feet of the house. Lead tends to accumulate close to where it drips onto the ground.