The studs are right up against the wall. The vapor barrier is between the studs and the drywall.
bloack Wall -> paint/sealer - > studs -> insulation(between studs) -> vapor barrier - > drywall.
I didn't leave a space between the blocks and the studs for two reasons. 1) I didn't want to lose the space. 2) I kept thinking that it would give a mouse or other creature a perfect place to live.
I don't have a mouse problem or anything but it just seemed like a bad idea. I could see a whole mouse society living in that space.

Maybe I'm just parinoid.
Dave