IdahoOrchid,
Thanks for the good description. Like Shadow, I think it would be wise to use less moisture. The sphagnum should not be at all wet, hardly moist at the surface, just enough to still be soft if you are growing in plastic containers. If you are growing in peat pots then wetter than that would be OK because of the more rapid drying.
I feel that excess moisture, either the sphagnum being too moist, or high humidity from "tenting" the plants can easily lead to rot problems. In our greenhouse the humidity is about 65% and we never tent seedlings, and always place them where there is very brisk air movement to avoid such problems. The ones that we grow in plastic pots with sphagnum are watered very, very lightly, literally only a couple of tablespoons per pot when the sphagnum is starting to stiffen at the surface.
Take a look at our potting recommendations:
http://troymeyers.com/direct/?0215
...be sure to read the watering part near the top.