Basement Issues

Right now the house, like any self-respecting century home, has a dark, slightly dank, and suitably unpleasant subterranean space where the furnace and electrical panel currently sit. Originally the thought was to dig up the floor (no easy tasky in a spot with only five feet of headroom) and then add superinsulation below, and then pour a new concrete floor. While this would be effective it is also expensive. The question then came up 'why spend all that money on the slightly leaky foundation and insulating it ect when it will always be dingy space for storage?'  What if instead we insulated the first floor away from the basement?  Then we insulate down below the frost line on the inside of the basement - this way the basement is likely to get cold in winter – maybe  minus 5 or something – but not super cold (may need some heat in their to keep the cistern from freezing, but that is another issue).   Keep the operable windows in the basement to vent the space in the summer.  On the outside, treat the water infiltration at the surface by sealing the connections between foundation and asphalt and re-pointing above grade.  I think this proposal will see my foundation freeze above grade – where it is dry, but not freeze below grade.  We can do this for a fraction of the cost.