Not sure if there is empirical data to back it up, but I have heard that during spark tests the issue of material is less important than the joints. For example, if you shoot sparks at OSB, pressboard, drywall, plywood, etc., the risk is minimal. It's when the sparks get in between the joints, or the gaps at the top and base of the material where they encounter sawdust, vapour barrier, insulation, dust, etc., that is problematic. This stuff can be flammable and fires can smoulder for a while before igniting. Once the fire starts, the choice of material is more important (but too late to change).
Ideally, we'd only weld and grind in cinder block commercial shops. But the same can be said of cooking in your own kitchen vs. a commercial one. At some point you need to be practical and tolerate some risk. Sealing the joints in any wall is a good idea. Keeping the shop clean is another way (I try to do a regular big clean in my shop, including vacuuming the joints and gaps—which you should do before moving your tools and machines in anyway).
If I were to do it over again I'd stagger concrete backer board on drywall, both with sealed joints. Having said that, your plywood approach has a distinct advantage in a shop my solution wouldn't be good for: the plywood provides a convenient and solid background for hanging tools, attaching fixtures, shelving, etc. I'm willing to bet a lot accidents can be avoided in a crowded shop if it were just easier to attach things to the wall. So you get marks for that David. My heavy shelves are stud located obviously; but there are lots of places in the shop I would have liked to hang things, but didn't because there was no stud.
I think you're going to enjoy your new space. In my experience fire departments are impressed as heck when a homeowner has a fire extinguisher anywhere in their home. So you're already ahead of the pack.
