Pretty much worthless energy wise & while the VSI will try to sell it that way, it isn't - durability & looks wise it is a step up
Yes the walls definitely need to be wrapped before installing this - make sure you get the flashing & rim details right so you don't trap moisture between this product & the WRB (though some do include drainage channels)
Another reason to avoid insulated vinyl siding, besides the middling R value improvement, is that it eliminates the air space behind the vinyl siding. The air space in vinyl and aluminum siding allows for ventilation drying of moisture that either leaks in through the cladding (via rainfall), or from interior sources (air leakage and diffusion of interior moisture). This ventilation drying buys you a lot of "forgiveness" and safety in this wall. This air space also relieves hydrostatic pressure of water in the cavity. More info in the links below.
"With vinyl and aluminum siding, the drainage space is more pronounced and furring is not necessary."
A workaround if having to use a siding type that traps moisture is simply using furring strips ripped from plywood 1-1/2" wide vertically to vent condensation, this also moves the siding off the sheathing to reduce conductive-radiative losses to cold winds & overheating from direct sun.
Sean is spot on.
I would only add that the best bang from your residing dollar will come as a result of a VERY CAREFUL installation of the WRB, and all the associated components -- taping the seams, carefully sealing around existing windows and doors and penetrations, and caulking at the top and bottom plate lines.
Essentially, try to get your contractor to understand and treat the installation of the WRB as a true Air Barrier.
A study by NJIT with video instruction on how to "Re-Side Tight" can be found here. http://www.buildingmedia.com/ReSideTight/
I wouldn't agree that the energy benefit is worthless. A study that we did for he Building America Program that looked at insulated vinyl siding in retrofit applications did show energy savings. The study should be published by Building America soon. Although limited, the study showed improvements in both air sealing and thermal performance of the wall. There is no reason an insulated vinyl siding application couldn't be part of a solution for improving the performance of the walls and could be used along with other insulation and air sealing approaches.
If you must eliminate the drainage plane, you might consider using one of the WRB's (make sure it's also an air barrier) that are designed to 'hold out' the siding -- Tyvek Stucco Wrap, or Benjamin Obdyke HydroGap are products that claim to do that.
If you are using Hardie on a building, James Hardie recently released a note that says in the near future NEW installations using their product WILL require at least a 3/8 air gap for the drainage plane. If you want their warranty.
For residential products...
I haven't been able to find the notice about the gap being required... but it may be possible that I had been looking on the commercial building side.. and that requirement is noted in the opening paragraph of the document liked above.
Interesting, in that I had a "heated" discussion at the Seattle Home Show about a week ago with a distributor of a vinyl siding product that had insulation. While I personally would avoid the product, he did make a valid point in that they had differentiated their product from the others by using about 1" of foam insulation... in fact it was that profile of the siding that caught my eye and stopped me at the booth. It was the first time I'd seen a vinyl siding product that thickness of the foam was pretty nearly 1" at all points... instead of thin slice at the top.
They had also put drainage groves on the back side of the foam... with the intent to reduce traping water and break the capillary effect.
But as noted, I would not buy the product for any application that I have at the present time. If you are going to reside the house and want to add insulation - allow for the cost of pulling off the old stuff and inspect the existing sheathing first, seal it so its air tight, and then add on something like Comfortboard-IS (rock - wool like product). and new siding over that...