Insulated sheathing materials can provide an air barrier along with a thermal barrier, and solve the biggest challenges of thermal bridging. The challenge of using insulating sheathing as an air barrier is to ensure that the R-value of the sheathing is high enough that it moves the dew point outside the cavity of the wall. The layer of foam makes it more difficult for the wall to dry to the exterior, so it must be thick enough to warm the wall cavity enough so that moisture doesn't accumulate. And then, you need to think of how the wall system is going to dry to the interior - it is recommended that low-permeance layers (polyethylene, closed cell foam) are avoided on the interior. This is a challenge in jurisdictions that require vapour barriers, and where the building code vapour barrier requirements mean you're stuck with polyethylene, instead of a Class III vapour barrier such as latex paint or other options.
This 2011 article from Green Building Advisor's Q&A Spotlight gives a good summary of a forum thread on a retrofit that included exterior insulation. It also points to a blog entry by Martin Holladay on minimum thicknesses for rigid foam sheathing.
