Since I had to dig down to put in footings and a foundation across the old garage door's opening (there was neither), the new foundation blockwork that I built is actually what created the bottom of the U shaped wall opening to begin with. I had built the block wall up to approximately 18" above the garage floor level, so that there would be some foundation showing under the bottom of the finished siding, which I kept 8" above grade to match the rest of the house. Having the 18" high block wall also creates a very wide and somewhat deep window sill aspect inside the house (once the interior framing of the room is finished), which my wife really wanted.
I framed the wall to hold the actual window flush with the exterior of the blockwork, using pressure-treated materials (with foam sill sealers) against the block itself, and non-pt materials around the window. Once I sheathed the exterior with 3/4" plywood and installed the window, everything was flush with the remaining wall and ready for siding (which I finished installing yesterday). I still need to do some finish trim at the top of the wall (on the roof eave and fascia).
Everything worked out very easily, and it looks very nice (if I do say so myself). Thanks to everyone for the input and opinions. It's good to know that my thoughts on how this was to be done were right all along.