Over the past several years I've noticed some wall deterioration at the corners of a window. While originally you could only see some warped paint, it's gotten worse over the years. I recently scraped off enough of the outside to see that there's underlying water damage, and I even noticed small holes where light was coming through from the outside. I tried inserting some wires/sticks through the holes to see exactly where they were leading outside, as shown in the pictures.

I'm wondering what the best way to seal the small holes in the wall would be (Inject some kind of putty/sealant from the inside? If so, what kind? Or is there a better recommendation?) and what the best course of action to plaster over the wall afterward would be. (I was thinking of using a drywall repair patch with joint compound).

Thanks in advance for any advice

 

Wow. Sad to say, that window and siding is a lost cause. The only real fix is replacement.

 

Had to read this several times, you noticed this for years and just now addressing it!
That window is not even close to being installed correctly, and it's the wrong style window.
There's very likely now inside framing damage, insulation and mold and mildew issues from letting it go on that long.
No amount of calking and slapping something on the wall is going to fix this one.