How should I install XPS insulation in a basement?

All,

I have what I think is an unusual problem and I’d like suggestions for the best way to address it.  I have a below-grade “cinder block” basement wall that transitions to a course of narrower blocks above grade.  An uninsulated rim joist sits on top of the sill plate on the narrower blocks.  (As near as I can tell, there is no gasket between the sill and the foundation block, but that isn’t what I think I need to worry about for now.)

The house is 40+ years old and the sill plate and rim joist look great with no signs of rot, but that is probably because the basement is unfinished and any moisture could easily dry to the inside.  Now I’m looking to finish a portion of the basement and I don’t want to cause any problems by trapping moisture.

I’m planning on putting 2” of XPS against the foundation and framing an interior wall inside of that.  Option 1 is to piece the XPS to follow the contour of the transition to the narrower block.  Option 2 is to just have the XPS go ‘straight up’ to the floor joists above, not following the transition to the narrower block.  This will create a void between the rim joist and the XPS sheet behind the framed wall. 

One way to look at this is that because, with Option 2, I will seal the XPS to the subfloor above, there will not be any interior moisture from the basement able to reach the rim joist.  Therefore, I wouldn’t need to insulate the rim joist (with more XPS or similar material.)

The tricky part is along the wall parallel to the floor joists, specifically the space between the rim joist and the first parallel floor joist.  This space also has an insulated heating pipe in it, along with a branch electrical service line.  These features make it difficult to completely seal the rim joist from internal moisture.  If I can run the XPS straight up behind the new inner framed wall and seal it to the first joist (Option 2) do I need to insulate the rim joist along that wall?  (I might put some mineral wool insulation in the space to keep the floor above warmer, if there will be no condensation in the space.)

I don’t mind piecing XPS (Option 1) but I don’t think it will end up being as perfect as I’d like, especially if having a continuous layer of XPS behind the new internal wall (Option 2) will be good enough, or even better.

Which way is better?