Depending on your shop you can fir out a vapor barrier wall far enough away
from the existing wall to allow for circulation behind it. Vent the
circualtion space behind back to the outdoors. Rigid foam board would be a
better suited sheathing and pressure treated wood for anything contacting
stone. Definately button up the window as recommended earlier. If you have
water problems as well I have seen this treatment taken one step farther and
actually trenched and tiled around the inside perimeter of the wall and an
after construction sump well dug. This was all done in a weekend by 2 people
with no 'hoes involved. Turned a dungeon into a decent living space.
Also of note IMLTHO the person that thinks that the air leaks help keep the
basement dry is wrong. One of your problems is going to be colder air
movement migrating in to a warmer space (yes even in sunny california). This
is going to create condensation and compound your rusting problem.

Knothead