Jim, thanks so much for your reply. If it's moisture they were trying to control, they did just the opposite with these walls because the rain runs right down between them and the stone foundation and doesn't let it go anywhere - so it has rotted all the sills and I don't think it has done the foundation any favors.
I can't afford to replace the existing foundation. Do you think getting those walls out to protect my new sills would destabilize the house? What do you think of using flashing?