Definitely sounds like the brake fluid, would be worth upgrading to some Dot 5 and if you’re having your fluid replaced go for some braided hoses, both objectives are to firm up the pedal feel and reduce sponginess.

But one thing to consider is if you’ve bedded your brakes in properly!?, they need say 20-30 miles or normal stop-start driving to take the surface off the pads and discs and then at least 3 really good hard 100-20 mph stops in quick succession (don’t stop to 0) and then a few miles of normal driving to cool them down. This will bed the brakes in properly, although sounds like this might be a bit risky in your condition.

As for the previous drilled and grooved discs, these were defiantly fitted aftermarket by the previous owner, you didn’t mention whether you took your car to an Audi dealer in which case they would have replaced them with OEM parts.

If the car is out of warranty it’s always worth upgrading the discs and pads when they wear out, in some cases the upgraded versions are actually cheaper than the dealer’s charge.

I wouldn’t worry too much that they’re not drilled and or grooved, find out if they’re OEM parts, if not then you at least want OEM discs and pads then the upgraded fluid and hoses will do the trick.

You mention being downgraded, truthfully the OEM discs (if fitted) might actually be better quality than the previous drilled discs, it just depends on what was and has been fitted.

Find out and then we can discuss it some more.