How should I insulate rim joist cavities behind backing blocks?
I see a few options:

leave the batt insulation
build out the framing to the sill, fill with batt, apply vapour barrier
build out the framing to cover the foundation as well, ceiling to floor, and apply batt + VB.
as you suggest, apply EPS, or better, XPS. Cut it in horizontal strips, leave a slot for the deck's ledger screws, and slide under. Apply technical tape at horizontal seams. If the gap is 12&quot; high, this might work with 6&quot; high strips.

For 4, you can additionally apply spray foam into the perimeter of the cavity and promptly insert the board thus &quot;squishing&quot; the foam and creating a tight seal.