are you using the brake pads fom the old bike the brake setup was on? with the floating style caliper on our bikes the pads wear at an angle over time, and if the pads are from a left side and put on the right for the dual- it will not be flush on the rotor, it will be at an opposite angle of the wear now that it is 180 degrees. it will drag much like the symptoms you described and it happened to me using old pads. these pistons donot retract very much at all -lets .030" at most, and if the wear angle is more than that-youll have dragging pads. i faced my old pads off with a lathe(wear a mask, nasty stuff) or replace them with new ones that are perpendicular/parallell/flat?. the dragging went away and the spongy ness that i felt on the lever was actually the pads compensating for the angled gap from the wear i described earlier. good luck!