More'n'likely your suggestion would be an excellent idea for all
concerned- either cellulose or fiberglass. You might best consult local
insulation contractors for specifics, and for clues as to what might be
done inside the wall cavities.

For house of that vintage, you can likely also see great returns on
improving windows, sealing, and heating equipment. Can't see from here
which would give you the fastest payback and thus should be done first.
If you use the AC much, regular professional checkup would benefit you,
too.

Since gas and oil will only continue to rise in price, the payback
picture for any serious conservation measure can only continue to
improve.

As an alternative, wood-pellets may, if supply/demand ever settle out,
rise more slowly. (If you can find reliable supplier.) And, they're
renewable. Significant initial investment.

If your furnace is worth keeping (to you), you might do well to look to
automatic stack damper, and clock t-stat.

HTH,
J