A. The flat sill plate won’t have enough strength to carry the joists unless it is shimmed at each joist. However, this would put a series of point loads on the foundation, which may not be capable of carrying that type of load, especially since it has already settled. Therefore, the best solution would be to support the joists on a beam just inside the foundation. Then the foundation can be stabilized to act as a curtain wall. In this case, stopping the draft will be the highest priority.
An alternative might be to raise the sill to support the joists, then grout between the foundation and the sill. The more space you have between the sill and the foundation, the better this alternative will work — first, because it will be easier to get the grout into a wider gap, and second, the thicker the grout layer is, the more strength it...
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