Hi John.
I would say based on your assessment that damage to the structural wood members is pretty high.
You could go for a more in-depth inspection, or just consider that if the lower walls were wet then yes, the drywall and even some amount of the wood structural members would need to go.
Structural Integrity
The only way the structural wood would NOT need to be pulled out would be if the drywall was removed shortly after the moisture affected it and it was properly dried. If anything other than that occurred, then the level of moisture remaining in the wood for days or even weeks would certainly affect the structural integrity of the wood.
Wood is a forgiving product. It can absorb, desorb, and absorb, desorb many times over. But it MUST have a chance to desorb quickly each time, or it's fibers and cells will fail (they provide the structural strength).
Find a water restoration contractor who can review the wood. Simply putting the points of a good moisture meter into the wood will tell them if the wood is "mush" or whether it's strong enough to last a few more wettings. Oh yea ... find the source of the moisture and fix that. That goes without saying though!
Moldy Odors
If you smell a "moldy odor" then there is certainly something there that is still wet (or growing). Those odors are known as Microbial Volatile Organic Compounds (MVOC's) and they are generated by an actively growing mold - digesting it's food. Not just in this house ... but in ANY house where you smell the MVOC odors of mold, those odors are telling you that there's an active mold growth somewhere nearby.
Good luck. This is find-able and fix-able. It is not a deal killer!
Travis West