You can continue with chipboard as long as it is flooring grade and the joists are at least 8" x 2".
Try not to touch the 2" x 1"'s, they may be serving a purpose (odd size though). You can re-use the insulation if placed correctly.
Use Gyproc plasterboard on the party wall side to give you sufficient insulation and sound proofing (ask your local building regulation office for full specification and type).
