What should I use to replace extra thick (1.75") sill plate? Should I shim 2x dimensional lumber?
You can go two ways with it. You can purchase a 4X6 or possibly a 3X6 and have it ripped to the 1 3/4" thickness you need, presuming the original is close to 5-6" wide. Or you could get the standard 2X6 and use non shrink grout to tuck under the plate after it is shimmed up in places to allow the grout to go in the areas that are the most important, under the joists. In either case the material need to be pressure treated since you have termites present in the area.

An added third way, you could even shim the joists with the sill plate tight on the block with no grout and use wood shims. Pleas please do not use masonite, it is terrible for shim stock.