Vermiculite insulation in the ceiling and walls...it contains asbestos.

Like most area of the country still, this area certainly isn't insulated from REO's.

No insulation, outrageous gas bill.

I have also picked up afew lots with scrap mobiles on them and lots of junk that I got because I had heard about the pig stys in a nicer area these were crap at lake eufaulaI contacted lots of owners and in some areas they won't allow mobiles anymore and neighbor were happy I bought Let junk collector I know take anything he wanted and he took everything even rotten lumber I did have to pick up some insulation and afew other odds and ends and had it mowed trees trimmed

If you are gutting the walls I see no reason why you would want to check for insulation leaks and rodent damage.  

The inspector came today and found small issues like not enough insulation on AC lines, not enough smoke alarms etc.  

First is the detail of construction; asbestos, knob & tube wiring, lack of insulation, aluminum wiring, etc.

Is there no heat to the room and/or proper insulation?  

usually it's just the matter of making sure that it is zoned as 5 units, then you are allowed up to 4 non related people in each unit ( check with the town on that, some restrict it to 3, but normal legal is 4) . it does not sound like a bad plan to me, you have to look at it this way, everything will be brand new, weather tight, super insulated and your maintenance costs after that will be barely anything. i have a house just like that ( it's sitting right now, i stopped work on it because i am about to purchase a school and turn it into 17 apartments) but the house i bought for 20k, completely gutted it so that everything will be new, so far i have new roof on it and 3 gas meters run to the house. so i do not think you are crazy.

Just noticed some "spots of daylight" through the siding from the inside (I can see the outside through the siding walls in spots - kind of like knotholes)aside from putting up vinyl or hardee siding, is there any way to seal this home before I insulate and finish the inside?