I do not pack phals tightly with sphag.
I mix my sphag with perilite about 2 part sphag to 1 part perilite.
I wet the sphag then ring it out(squeeze out excess water with my hand) before I use it.
Again, I put enough in to make it snug and really am careful not to over pack.
I like to put as much of a ball around the root system and gently hold it around the roots while I place them down in the pot. So you may need a bigger pot. I prefer clear plastic with side slits.
Then after I have the plant placed in the pot, I put in any extra I need etc to make it snug...if it begins to seem too tight, I dump the thing out and start over