I have that stuff too, it came into my tank as a hitchiker. I wish it was not in my tank, though. The only lfs owner I trust told me "its not bad, but its not good" I don't know what it produces, but every couple of days the sponge has bubbles on it. I think cyanobacteria produces nitrogen bubbles, the sponge might do a similar thing.
Does your spongie stuff have bubbles on it? If so, we might have the same stuff. I searched threads on this site, but there aren't really any helpful ones...