Problem solved. Spoke to a guy from Connecticut who I sold my old wheels to. He has the 6 piston version of these brakes and had the same problem. It turns out, these calipers have a small piston area and require an aggressive pad to work properly. I was using a street pad that was not stopping the car, thus requiring more pedal pressure and giving the illusion of a spongy pedal. I took his advice and switched to a race pad that came with the kit.

First stop out of the driveway felt the same. Second stop to chat with my neighbor, similar but a little more grab. Third stop at the end of the block for a stop sign, I stopped 20 feet short of the stop sign and hurt my chest on the seat belt. There might be a bit of air left in the system, but it stops so hard with such little pedal effort, that I don't see it bothering me ever.

Thanks for everyone's help in this thread. The brake system is definitely vastly improved from the diagnostic efforts.