Sorry it all got a bit mixed up. I'll sum up my points:
The paint, it is ugly and go ahead and remove it if you wish. It is however not causing your damp inside the house so you can re-paint instead of removal.
Damp inside the house is most likely due to poor ventilation but could be another cause.
The damp insulation is neither causes by the paint or by interior moisture, it is either a leak or coming up from the ground.
I think that covers it.
The paint, it is ugly and go ahead and remove it if you wish. It is however not causing your damp inside the house so you can re-paint instead of removal.
Damp inside the house is most likely due to poor ventilation but could be another cause.
The damp insulation is neither causes by the paint or by interior moisture, it is either a leak or coming up from the ground.
I think that covers it.