Are you using silicone based fluid? Silicone fluid has a spongy pedal feel because it is more compressible than ordinary brake fluid. The pedal will also have more travel before the brakes are fully applied.
To check the system for air have someone apply the brakes about 10 times, holding it the last time. With the master cylinder cap removed watch the movement of the fluid while the pedal is released. A heavy surge from the compensating port indicates air in the system. Note which chamber has the high fluid surge. This is the side that has the trapped air.