the warm fuzzies

We have lots of projects in mind (but no money!) for the near future, but one of the more pressing ones is the fact that the girls' room is poorly insulated.  We got through last winter with an oil-filled space heater, but I'm guessing that before the end of this winter, the girls will be out of cribs and into toddler beds (pray for our sanity), so a space heater won't be a viable option any more.  We think their room used to be an old porch, and it doesn't have a brick exterior or a basement under it; the rest of the house has both.  So...what are our options?

Being a die-hard DIYer, Brandon suggested pulling down all of the drywall, installing insulation, and replacing the drywall.  My brother suggested we get someone who can cut holes in the wall and spray in foam insulation, which sounds expensive, but we haven't checked yet (not even sure where to start).  Brandon's mom suggests insulating from underneath and just dressing them warmly ("They survived last winter," she says, "when you didn't put enough clothes on them and they were tiny."  One of those times when "I told you so" is totally warranted...as per the books we kept the girls' room at 69 degrees and dressed them in light layers to reduce the risk of SIDS.  Later we realized they probably woke up so often because they were cold!)

We're open to suggestions and advice, so throw us some ideas!

*update:  Here's a description and photo of what we're considering.  This Old House says that foam is the most expensive, but best for air quality.