Basement finishing question

Metal studs are no bueno, no sound dampening. Second point, if your basement needs water proofing, that goes on the outside wall. 

There are waterproofing systems that work on the inside. Metal studs wouldn’t be a problem in my opinion as long as it insulated all of the walls. If you have a open rafters to the first floor you could move any protrusions like shut off valves and then insulate and drywall. The room will feel more finished if you have a drywall ceiling. If you were concerned about the metal studs you could always run a second layer of drywall

If your foundation walls leak the best place to address that issue is on the exterior.  Interior-applied systems will not hold up against hydrostatic pressure.  And a good exterior foundation waterproofing system will include a good foundation drain system and a drainage course (gravel or composite drainage board) over the vertical membrane.

If the foundation walls are CMU, an interior coating will also serve to keep the water in the CMU (which is vey absorptive, and will likely have open cores), so the water will usually flow down to the slab level and then seep out of the CMU onto the slab surface.  That results in flooring system damage, and possible damage to the bottom of the wall finishes.

If the foundation wall is cast-in-place concrete, it should only leak at cracks, control joints and/ or penetrations.  These can usually be dealt with with urethane grout injection from the interior.  And supplement this by making sure all downspouts are routed to discharge away from the house and make sure the soil surface slopes away from the foundation as well.

Not trying to state the obvious, but fInishing should not have an affect on the basement waterproofing- if it leaks prior it will leak after. If it does not leak now, you can put dry lock paint on it to further waterproof from inside but that may be overkill. I have dry walled all of my basements but a drop ceiling is much more convenient from an access standpoint. Some of the newer panels are very high end. If you have any doubts about small leaks, elevate everything. You can even put in a false floor if you have under floor ventilation. I have my sump pump- with backup on an auto start generator but you can also hook up a waterline pump if a generator is too expensive. 

I wanted to add that dry wall recessed between the rafters would be really cool and give you the maximum available height. I have thought about this a lot and it would make the space just a little more special. Drop ceilings are easy and cheap but I always feel like I'm in an industrial building with dropped ceilings. 

Cool. Probably audio unfriendly.
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Drop ceiling give you easy recessed lights, diffusion and unlimited easy access.
Metal studs a non issue except for fire code.
That Indonesian submarine wasn't waterproof.
What ARE you talkin' 'bout?

Waterproofing should go on the outside and should start a few inches above the grade and extend to the footing (dimple board would be my choice). A footing drain would run the perimeter to carry the water away to daylight. This is the most expensive way but if you can do it, you won't have to worry about it again. If the system is on the interior then you are managing moisture inside a conditioned space which is not favorable but can be done with mixed results. If you go with metal studs hold the wall an inch off the masonry and use a closed cell spray foam. It will create a thermal break and minimize the potential for condensation. Spray foam will also help dampen any vibration from the metal studs. You can cover the walls with 1/2" sheetrock after that. Closed cell foam can be run thinner than open cell which has to be done twice but is a bit cheaper. This is probably the most expensive way but it works. I have no call-backs using this method except when a landscaper built the soil up too high in one spot.Drop ceilings are the most accessible for future upgrades and the panels come in a pretty wide variety of styles now but sheetrock with recessed cans looks much better and no matter what you put on the ceiling, it's going to be a reflective surface to some degree and need some kind of treatment. Good luck with it

Now is the time to put in dedicated 10 gauge 20A circuits. Cheap now, much more expensive later.

Also keep your ceiling height as high as you can. Much better acoustics.

Thanks guys. I'll keep you all posted on the progress. It may take me awhile. I appreciate the input. 
    I don't actually have a water issue. The house was built in 2008. The yard is graded away from the house. The main wall I'm concerned with has a nice southern exposure. A lot of light pours in the 4X4 egress window helping to keep it bone dry.