First thing
You need to do is, get that wet sheetrock out of there. The insulation too. Sheetrock is cheap. Dont be afraid to to cut out a wider section than you need to. Cut out in widths that best fit a 48" sheet. In another words, 12" will get you 4 cuts, 16" will get you 3, 24" will get you 2 cuts. Do you have a chalkbox? In not, get one. Measure up from the botton of the exhisting sheetrock, not the slab, the mark the desired height at one end, and at the other of the wall. Chalk the line. With a utilty knife, and new blades, cut along the chalk line holding the knife perpendicular to the wall. Dot worry about going deep just yet. Go below the cut you just made about 3/16" and cut again. Except this time, hold the knife at about a 45 degree angle. Thats with the handle down and the knife point heading towards the first cut. What you wanna do is, create a gap so its easy cutting. Leave the cut edge of the sheetrock that is staying, as square as possible. Thick. Dont worry about cutting all the way through the rock, you dont need to. Bust it out with a hammer and clean up the edge. I wouldnt reccommend using a sawz all. You have wiring and plumbing in the wall. That could be bad news.
Anyway, make sure everything is really dried out before hanging the new rock. If you wanna go for it, I would. Let us know when your ready.