I grew up in Wisconsin and Michigan and never saw anyone use a sponge to wash dishes.
I have sponges, but we use them for cleaning out sinks and tubs, not on the dishes. I didn't even know they could be washed with laundry -- I always thought they'd come apart in the wash!
My mom uses a scouring pad (without sponge) on her dishes but when I moved out, I bought a bunch of styles and colors to try out -- including the scouring pads I grew up with -- and I realized I preferred small cloths. The ones I use now were knit by me.
As far as knitting in general, dishcloths are a good size for practicing and trying out knit patterns. I wish I liked the larger sizes, because then I'd be making new dishcloths all the time.
I should try gifting some and see what kind of a response I get back; I'm just not sure what everyone else would like. No one ever comments on either my dishcloths or my knitting, so I assume no one wants any.