The smell is gone now and the roots are growing but the sponges are completely coated in thick rich green sludge. The water smells fine and has no residue in the reservoir. Some of the hydroton has the green on it as well.

I started with 2-3 seedlings in each cell and eventually thinned them out. Could this have produced enough dead matter in the system to make all this green sludge only in the sponges?

Could it just be a result of the nutrients sitting at the top of the water for a bit too long and absorbing into the sponge?

Some media tends to produce more or less topic algae. The time it takes and its density depends on light exposure (UV) and permanent moisture of the surface. Normally the hydroton shouldn't produce much algae.

>>I started with 2-3 seedlings in each cell and eventually thinned them out. Could this have produced enough dead matter in the system to make all this green sludge only in the sponges?<<

Actually not, - but what may have happened though, is that when thinning out the seedlings, the moist sponge (surface) was more exposed to light and eventually produced more algae. Also the fact that you (may) have switched to a stronger nutrient concentration could have induced algae production.

The quicker and the more the surface (of most media) get covered by leaves, the less algae is produced. Which means that as soon as leaves grow bigger, less light gets to the surface of the wet media and it should stop. Well, at least stagnate.

It looks fancy but It generally does not do any harm as long as it is topic and doesn't grow bigger. You could simply cover some spots with dry hydroton.