I use sphag for reviving (and growing) phals. Fluff it up, and don't pack it in real tight. Use the smallest pot that will hold the roots.
I also would recommond investing in some Phsyan 20. Make up a dilute solution in a spritz bottle and spritz the whole plant and root area thoroughly when repotting. Physan is a contact product, works only for a few days, but it does stop rot from progressing.
See this discussion of using physan to stop rot:
Example of Stem rot or Crown rot in Phalaenopsis