Good to Go has the right idea I had this same problem.I used a High Lift Jack under the 2X4 you nailed on the side of the studs to raise building.After cutting rot out of studs and replacing sill,I cut off rotten siding about 23 inches from bottom of sill plate and replaced with treated plywood of the same thickness as the wood siding.Make sure you set the depth on your saw so you don't cut into the studs when you cut out the old siding.This gave me a small amount of lateral bracing and insured that it would not rot out again.You can then rip your plwood sheets 2 feet X 8 feet and then install them over the studs,this will let you have a 1 inch overhang below your sill plate so everything is sealed up.After doing this you could put your new siding over the top without problems.Plus it will look like a carpenter did the work.Good Luck with your project.
