Re: Mudding over stucco?
If the stucco is of smooth texture, I'd use z-channel (metal) attached to the block with a Ramset, and drywall over that. Only if you wanted to add plumbing or electric to the wall should you take the space from the room that a full 2x4 wall would require. If you are in an area of cold winters, you can use rigid foam insulation 1" thick between the sections of z-channel to get something like up to R-6 on the wall. It helps the pervading cold feeling at exterior corners/ block walls can conduct out a lot of room heat where part of the wall is outside and the rest indoors. Plaster alone would not permit any added insulation value, but would be least costly and involved.
Remove not the ancient landmark, which your fathers have set.