Install 1/2-inch foam insulation boards over the cinder block walls. To do this, place adhesive on the back side of the foam and stick it to the wall. The specific kind of adhesive, along with the amount of adhesive, varies based on the foam insulation boards you are using; follow the manufacturer's instructions.
Measure and mark off every 16 inches along the top and bottom of the insulation on the cinder block wall. Snap a chalk line vertically from the top and bottom of each marking to show where each vertical furring strip will go.
Place a 1-by-3 furring strip up against the top of the wall and use the hammer drill with a carbide masonry bit to drill holes every 24 inches. Place the concrete anchor through the furring strip and into the wall, and tighten the anchor with a socket wrench. Work your way around the top and bottom of the wall until the perimeter has furring strips installed, and then install furring strips vertically along the wall so they line up with the chalk lines you snapped every 16 inches. You'll need to use a miter saw to cut the furring strips to fit.
Place the sheet of drywall up against the furring strips, and use a drill and 1-inch drywall screws to attach the drywall to the furring strips. Use a drywall dimpler bit on the drill to prevent the screw from ripping the paper on the drywall, which will result in the drywall popping away from the wall. You should use one screw every 12 inches on the sheet of drywall.
Work your way around the room until all the walls are covered with drywall.