My basement walls sweat at the above ground area.
We heat the space and use as living space. Would insulating this area help with this problem. I was also wonder if I would have to use a 2×4 wall or could I use something like a 2×2.
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You are getting condensation on the wall because the wall is cold. Yes, insulating the wall will help. Here is a link to an article that will explain everything you need to know: How to Insulate a Basement Wall.