^^ Kris that is good advice.
I have certainly been guilty of messing with things just because I wanted to, not because I have needed to and a lot of times all hell has broken loose.
Saltyjay,
You think you have plenty of rock to handle your bio-load, but what you are seeing doesn't support that. Your wet/dry was handling the job fine, but as you are removing the balls it appears your rock cannot.
Now, as you suggested, this could just be a spike caused by your disturbance that could just even out. Time will tell. But if not, my guess is that you need more rock, or, at least, better quality rock.
Back in the day, when I had mine going and worked at an lfs, everybody said 2 lbs of rock per gallon. It appears this has changed a bit. But even at today's rules of thumb, you are on the low end of the spectrum with 1.2 / gallon in your 55. Now if you have primo Indo rock or something that is porous, light, etc.. you could probably get away with it. But I don't know what you have. Even if it was top shelf, personally I would add more.
Going the refugium route will help, provided it is not just another aquarium with a little caulerpa, but one that has a ton of caulerpa to hammer on those nitrates.