I'm not an expert, just a homeowner who lived in an 1886 victorian with windows in three bathrooms...all of which were rotting when I moved in.
I didn't want to remove the windows since they were the only source of light in the bathrooms, so I replaced ALL the rotting wood...and whooeee, there was a lot of wood surrounding the windows that had rotted out!
Once the wood was replaced, I put in new windows. I waffled on whether to go with newer framing that wasn't wood, or to replace with more "period appropriate" windows. Chose the older wood sash types, BUT, I primed ALL of the wood with an oil based Killz type product prior to installation, then used a good oil based gloss paint on the window sills and sash. After that it was just a matter of repainting once a year and recaulking at the same time so that moisture couldn't seep in around the edges and get to the framing again.
I lived there for 10 years and never had a problem.
Nearly everyone I talked to told me I was playing with fire and that the windows would rot again....guess I was either lucky or dumb, cuz it worked for me....and it was a LOT cheaper than bricking up the outside of the windows with something that could never match the original siding on the house.