With the right thickness to allow access to the full geometric surface area, you could cover the entire sponge with matala as long as it is in full and complete layers you can use just about anything. But I have to warn you just because something is labeled bio media doesn't mean it works any better then sponge or poly-batting, the bacteria doesn't care about the marketing slogans and it going to colonize your tank to a much greater extent then your filter
You misunderstood my intent when I said I would consider using matala. In this particular case, your right, for this application, there are far better media to use for the colonization of bio-media than matala. In this particular instance, my suggestion of using matala has nothing to do with its bio capabilities (or lack there-of). I would be using it as a course pre-filter pad to capture the larger debris and extend the service period of your poly wrapped sponge. It would replace the blue pad you have laying on top of your sponge in which you cut those three "notches" out of. In this particular instance the matala's semi-rigid and self forming structure would eliminate by-pass, and be very easy to clean and re-use. Of course, this may only make sense to those of us that have extra matala laying around, as is the case in many a DIY project.
I can however assure you that there are applications in which matala has no equal. This is primarily the case when desiging much much larger DIY filters with much higher flow rates (3000 gph+) where you want the media to perform the duties of both bio and mechanical filtration, be easy to clean, and have a long serice life. Such is the case with my two 55 gallon drum filters used on my koi pond.
This being said, I do like your design on this mod, the poly wrapped sponge should do a nice job, providing it is sealed well with no by-pass. It's service life before losing a significant amount of flow would need to be tested and is largely dependent on several factors such as load, stocking, and feeding densities. Your mod, in any case will indeed extend that service life due to it's increased surface area. However, just to clarify, and something I am sure you are aware of, you have actually decreased the total surface that would harbor the beneficial bacteria (BB for short), as BB will not only grow on the surface of the sponge, but throughout the entire density of it. Whether or not this is significant I tend to doubt, and the remaining sponge material shoud still be plenty IMHO. Another idea I had was to replace the sponge entirely with a sponge from an air driven sponge filter (mark V), which tend to have much finer pores than those found in these bargain filters. Doing so would add a significant amount of colonization area for the BB, and, more importantly, do a much better job of polishing the water.
I am curious about several things, mainly interior dimensions of the filter, as it can be somewhat a guessing game when dealing with posted pictures. For instance, what is the distance from the outer edge of the centrally located intake tube to: a) the interior edge of the filter chamber... b) the closest point of the exterior edge of the discharge tube. Also, what is both the diameter of the interior filter chamber and the depth of it?
I am seriously thinking of getting one of these and modding it for an entirely different application that would suit my needs. I have always wanted a portable water polishing filter that I could use between several (more than 8) tanks. I want to be able to move the filter to a tank, insert intake and discharge tubes inside the tank and turn on, let run for an hour, turn it off, quickly move the filter to a cleaning area in which I could easily remove the polising media, spray, bleach, then de-chlor, and then setup on a second tank and repeat. I have seen this done with an fx5 mod, however, something approximately 1/2 that size would be easier to work with.