Pros and cons of walling off window from inside only or removing window and sealing wall totally
The pros are simply that it saves you siding repair and may add visual interest to the outside of your home. The cons are that you now have a window that you can't maintain from the inside.

I did this at my family's lake home, but it was only intended to be that way  for a few months until warmer weather. We framed inside the window, insulated, and applied vapor barrier on the inside as is standard here. There were no problems at the time we removed the window and repaired the siding later that year.

Whether you have mold issues is going to depend on the quality and condition of the window. Some moisture will get behind the window due to air movement, but it shouldn't be a problem unless heavy moisture gets trapped.