Insulation

Will re siding my house with a thick underlayer (3/4 inch) of of that insulated siding backing improve he overall draftiness of my house?

A Tyvek type house wrap would be very effective, and probably be easier to install/cheaper. Check door and window seals, and surrounding trim to be sure that that's not the problem. Good Luck.

I assume this stuff is in 2' x 8' sheets or so? Caulk all edges, too.

With the climate in western MA, if you have less than R-19 in your walls, I would do it. If you have R-19 nor greater, I (personally) would not. The cost usually outweighs the gain after R-19 (unless you have blown-in cellulose now, then you may have a good deal of settling and may want to consider it as well). If you don't do the insulation, DEFINITELY do the Tyvek. If you do the insulation, definitely caulk ALL seams.