Hank, it's hard to tell from the picture, but your sphagnum looks like it might be too wet. If you take all the cuttings out and compress a ball of the sphagnum in your hand like you're wringing out a rag, does water drip out? If so, it's too wet. Keep wringing it until you can't get more than a drop or two of water out at a time, then re-fluff it, and it should do fine.
That might not be the reason they're not rooting, though. Wouldn't think too much moisture would inhibit rooting, but you never know.
Maybe it's just coincidence. Looks like you only left 6 cuttings in the sphagnum, whereas there are about 30 or so cuttings in the paper towels.
Many, many folks have used sphagnum successfully, including myself. But if the paper towels are working better for you, then by all means stick with them.