Your basement cannot have any moisture problems, or your wall will eventually need extensive repairs. Any moisture trapped behind a wall ultimately decays the wooden framing. Inspect the basement for leaks carefully after any significant amount of rainfall. Sometimes solving a wet basement problem involves a simple fix, such as repairing a gutter or downspout. In other cases, you might need to install an exterior drainage system, which involves considerable expense.
The most common construction for a finished basement wall involves using 2-by-4 studs for the vertical framing members and a pressure treated 2-by-4 as the horizontal bottom plate. Although this type of construction takes up more space than some other finishing methods, it has the advantage of being easy to install and leaving plenty of room for any electrical outlets and wiring. Concrete screws fasten the bottom plate to the floor while drywall screws secure the top plate, the horizontal 2-by-4 board running across the top of the studs to the ceiling.
Another type of framing, frequently seen where space is restricted, uses 2-by-2 furring strips rather than the larger 2-by-4 studs. The bottom plate remains a pressure treated 2-by-4, but a 2-by-2 attaches to the upper part of the wall and serves as the top plate. One disadvantage of the furring strip system is the limited space behind the wall for electrical outlets. You might need special equipment, such as electrical metallic tubing -- a protective piping system for wires -- to successfully install all of the electrical components.
Both types of basement wall finishes typically use drywall for the outer covering, although you can use other materials such as wood paneling as well. A moisture barrier of foam adjoins the concrete foundation wall while a layer of fiberglass or foam insulation fits between the moisture barrier and the drywall. Avoid putting a moisture barrier between the insulation and the drywall, which can trap moisture behind the wall and lead to damage.