Hi Tricia, You failed to mention what product you are residing with, so I am assuming you are going w/ vinyl, which is commonly placed over top of other old sidings. It will definitely need a "perforated backer board", typically 3/8 inch styrofoam with lots of tiny holes, to be installed over the masonite and act as drainage plane for water that may find it's way behind the siding. Vinyl is only a rain shield and not "waterproof" by any means. It's important that it be perforated so water vapor moving through your walls from inside the home does not get trapped between the styrofoam and the old siding and cause more rot. As far as your concerns, depending on the severity of rot, you may be okay going over it, with no ill effects whatsoever. If there IS severe rot (the type you can easily put your finger through), and I assume it would be near the ground, I would recommend removing those areas to see if it has afftected the framing. Typically just the bottom two or three courses of siding will need to be removed and can be replaced with 1/2" pressure treated plywood after examination and/or repairs are made. Then they'll side right over everything. As for siding contractors, they install siding. That's it. He is not in the business to do repairs on homes, just install siding. They frequently cover over incredible defects that only surface as much worse problems later on. The defects need to be identified and corrected by a home repair specialist prior to the siding contractor beginning his work. Now, if you really feel you may have mold and damp framing in your walls, you can get a quick partial home inspection from an ASHI certified home inspector who will use a moisture meter to determine the moisture content within the wall and possibly even use a special scope to be able to look inside the wall for evidence of rot, mold, and decay by boring a very tiny hole through which he runs his instruments. That will cost $150-200, but will come with peace-of-mind knowing he has an "errors and omissions" insurance policy, in case he makes a wrong call.