The Lady Mary

I'm in the process of gutting a Calypso 28 cruiser and rebuilding the interior. It has taken on a lot of water from all angles, so I'm keen to do a slow, thorough restoration, fixing the core issues before I rebuild anything. I pulled away most of the interior plywood from the walls, most of which was wet and rotten. In parts, especially around the window frames, there are slips of polystyrene (pictured). What is the best solution to replace these with? Please excuse my lack of expertise, this is the first restoration I have undertaken, so I'm keen to learn from you guys on here. Thanks in advance!