Unfortunately, to me, it looks like crown rot which usually results in losing the orchid plant.
I would not give up yet though.
Bugs in the media imply it needs to be replaced and I would do that. I would in the process of repotting, cut off all the old rotted roots and any inflorescence/spikes.
I would also treat with 10% bleach solution or Physan 20 as an overall anti-fungal/anti-bacterial. If you have mosquito bits put some in the media as the usual "bugs" crawling in the media as you described are fungus gnat larva...however, you can do this later if necessary. Mosquito bits are a pretty common home and garden product; Physan 20 is a bit harder to find.
Watch it closely and if the crown continues to soften and that lead leaf "melts away" pitch the plant.
Also, keep it away from your other orchids while you wait...
Good luck