ANSWER FROM THE INSULATION DOCTOR:
My first recommendation is to bring the insulation in your ceiling up to an R-49 and make sure the attic is ventilated properly.
Houses built in that era normally have 1-1//2" R-7 in the exterior walls. That is assuming the walls are 2x4s. Today's standard requirement is an R-21 in a 2x6 outside wall. Your situation is what is commonly referred to as being "between a rock and a hard spot".
The cost of insulating your walls to their maximum potential far outweighs any savings that you would accomplish. On the other hand, if you were to go ahead and blow insulation into the wall cavities you would find the house much more comfortable but this is NOT cost efficient.
Regarding removing the siding and wrapping the exterior prior to installing the new siding is also not cost efficient. The wrap would provide great resistance to wind, however, no R-value would be increased. Many companies provide a 1/4" foam-type substance as an insulation barrier before reinstalling the siding. That 1/4" foam equates to approximately .01 r-value. In essence it is impossible to bring a house built in the 50's up to today's energy code and requirements for efficiency.
Replacing the windows on the second floor was a step in the right direction.
Bruce Jones
The Insulation Doctor