How do I drywall over a partial cement wall?
Well, it rained pretty heavily the entire week while I was working, so I waited a day or two before drywalling to see if I could find a leak. I believe whatever was causing the problem was fixed. I think the mold there was from back when that window used to be a doorway.

Here's my fix: 
The wall was very unlevel, so I went to Lowe's in search of Lath (my brilliant wife's idea)! I used it to level out the wall and pretty much re-build the wall without having to actually tear it apart. Here's a shot of the lath-ed wall:


I also put some plastic on the bottom to cover the cement area, just in case

And a two shots of the same wall now mudded &amp; tapped: