well, seems like you are on the right track, removing the old infected pseudobulb and dusting with cinnamon powder. hopefully everything goes well for your oncidium.
by the way, i always think coconut husk and sphagnum moss dun make good combination coz both of them are water retaining, might be too moist for the medium. anyway i am not a big fan of oncidium, perhaps other forum members can chime in.