proportioning valve??

Eddie that one will actually work ok as long as the plunger isn't stuck inside. It doesn't have 2 of the circuits the disc/drum valve has but it will still work, just not quite as good, but it won't cause the problems you are having unless the plunger is stuck. If you take the plug out of the end you can see if the plunger is free. The plunger being stuck will cause the light to stay on but I don't think it'd cause spongey brakes. You may just have air still in the system which would cause both problems. Did you install a new master cylinder? If so did you bench bleed it?

How to bleed the brakes correctly plays a big part in getting all the air out of the system. You should have someone pump up the brakes and starting at the right rear wheel just crack open the bleeder valve quickly then immediately close it. Do this until it doesn't spit at you anymore, just clear fluid comes out. Then do the left rear, then the right front, then left front. Some guys open the bleeder valve too long letting all the fluid run out and it actually lets a little air back in. That's why you should only crack it then immediately tighten it. You don't go through as much brake fluid and make a big mess that way too. Doing it that way you'll get a good hard pedal.