I would just clean everything out, put down the horse bedding pellets, and be done with it. With the limited ventilation and high humidity we have here, they handle both. Sand, like you said, gets wet, and it sits there until it dries.
We put down about 2-3" of pellets and change them out when around 80% of them turn to dustless sawdust. In one coop, it's once a year. We use them in our brooders too. Zero odors.
We use DIY 5-gallon nipple buckets in the coops, so no open water, and vertical nipple bottles in the brooders. The only birds around here not on nipples are the ducks.
I'd get your birds some vitamins, like Poultry Cell or Nutra-Drench. Many times they can get over minor respiratory infections themselves, but a vitamin boost helps them.