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If you're sure the pistons move easily, here is another thing I ran across. The master cylinder has a tiny hole that bleeds the pressure back into the reservoir after braking. If this hole is clogged there will still be enough pressure to make your brakes drag causing the spongy pedal. I screwed up when reassembling mine and put the cupped washer on upside down. That left the rubber cup never getting past that hole. It acted a lot like you describe.
 
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