Ron, You'll probably get several responses to your questions, but I have a few concerns with your method(s).
First, attaching wood studs directly to block/concrete will most certainly result in wicking of moisture and/or temperature (sealed or not).
Second, I've yet to see any foundation wall that's straight/plumb. If you connect your drywall more or less directly to the foundation, you're bound to have a wavy/tilted wall.
Third, although shallow electrical boxes are made, they're really a pain to use, especially if you've got more than one set of wires running through them.
Unless you're really tapped for space, I would use 2x4 studs, spacing them slightly away from the brick/concrete, and frame in the 'traditional' style. Granted, 2x4's are more expensive than 1x2's (unless you decide to frame in metal, my choice), but you can be assurred that your wall will be straight and true. Furthermore, the extra space will allow for more insulation, and 'regular' electrical boxes. If you go this route, you can use the floor joists above as your 16" spacing - this way you only need your floor plate.
As for drywall selection, remember, you'll have to carry all these in the basement. Understanding this, go with the 1/2" (unless you want to carry 5/8"). Normally, I use a scrap piece of drywall as a spacer, putting the drywall about a 1/2" above the floor (of course, this varies depending on how level your floor is).
Finally, with all that said, I've seen a type of foam insulation designed for exactly your purpose - the edges are notched to accept framing. Someone else may be able to fill this in a little better, but I seem to remember seeing this stuff at a local home center.