Hi all,
Of course the practical and cost effective way of insulating would be to insulate the inside of the walls. You shouldn't even have to insulate the full length, the biggest bang for your buck will be the portion above ground, followed by the next few feet under the ground. However, it's not the best for keeping the temperature constant...
From an "thermal mass" point of view, you should NOT insulate the inside of the walls. That concrete is great at holding it's temperature and why give that advantage to the outdoors?
You should insulate the outside of the walls from the first floor down, and dig around the house to put in insulation at an angle around the house. This isn't practical for existing homes, so should be done when a home is built, but could be done afterward. I have an example of this type of design in practice. It was a test house built in Platteville, Wisconsin in the 70's. The home is awesome! I may have to make a thread about it.