first, flush out the old brake fluid and put in ATE fluid. see if that eliminates the spongy feel. as you said, you may need to check out a binding caliper.

then after you've gotten yourself a solid pedal feel; experiment with different pads. if you still have some mush, check the rubber brake lines - may need to change to stainless steel lines.

you have to decide what level of performance you want then find a pad to match. I like the PRB for "dustless" street driving, but think Hawk pads are better for more spirited runs.