I suggest that we allow sponges on prison since in a snapshot a new boss have been added in that snapshot, im not sure if it will be added though when you kill that boss you get a "Wet Sponge" which while you cook it in an furnace it will turn into normal sponge. Im not sure why you aren't allowing them, if someone knows please tell me.
I have no idea, that's not up to mods of how it will be handled or if at all. Currently they are contraband. If found with, it gets taken away as they are not natural to the prison map or minecraft world.
That's only if that feature is enabled in WorldGuard(?), or whichever plugin it is. In Vanilla MC sponges do zilch. Nevermind, lol, just read that that is being changed in 1.8, sponges soaking up water and whatnot.
Seems fair. I'd imagine at the moment they are illegal because they can only be obtained illegitimately (again, at the moment). I'm sure the policy will change once they are obtainable normally.