Thanks for sending this second, and more detailed e-mail. The more
detail I have about a problem the better! You are correct in your
diagnosis of too much moisture, too little air at the roots. Although
Phalaenopsis do not like their roots to dry out too much, they do
appreciate a great deal of air movement around them, and resent
constant wetness. When fresh, Sphagnum provides a near perfect
combination of moisture and air. Unfortunately, it decomposes pretty
quickly, and becomes a sodden mess. It's great for the growers who
need to produce quick growth in optimal greenhouse conditions, and
awful for home growers unless they are willing to monitor watering
carefully and/or repot once a year (or more).

The rapid loss of leaves, and the growth of a new fan of leaves from
the base of the plant indicates to me that there was also crown rot.
this is often the result of water remaining in the plants apex during
cool periods (like if the plant is carelessly watered too late in the
day). In nature these plants tend to grow on upright trunks and the
sides of branches so that the leaf crown faces out (rather than up, as
in a pot). Water then drains off the plant's leaves quickly after a
rain and never remains in the apex.

You may well be able to save the plant, but it will require careful
attention. Because it has only one leaf to support the roots, over
watering becomes a real problem, and it will be best to let the pot
dry out well between watering. You may want to make sure the plant is
in as small a pot as possible, given the loss of roots. Your
conditions will need to be as good as possible. This means no stress
due to excessively cool nights or low humidity. Light should be very
bright. Feed every second or third watering with a complete, evenly
balanced fertilizer at quarter strength through the winter, half
strength the rest of the year.

So there is hope. I wonder however if it is worth the effort, and
personally I would toss the plant. These days high quality
Phalaenopsis are pretty common, and available in great numbers at
reasonable prices. They are often cloned; but even if not, seedlings
are raised by the millions. If you specifically want the challenge, by
all means keep it and enjoy the slow return to health that may very
well occur under your care. Do not expect the plant to recover
completely and bloom again for at least two years. If by some chance
it tries to bloom before it has at least three decent sized leaves I
would remove the inflorescence so its energy is devoted to vegetative
growth only.