No, not just fungus - actual mushrooms, stems, caps and all. I used well-seasoned wood branches that had been aging outside for several years. I guess they aged better than I realized. These branches are part of my living wall.
I made the mistake of not baking them prior to using them. I ran a torch flame over them quite thoroughly, some even lit up a few times. But I guess the flame wasn't enough to kill the mycelium that had set up a home deep inside the branch that is most affected. So now I have two encyclias and two catts happily growing on it, and once in a while, up pops a little brown mushroom. I pick them off as soon as I see them, of course, but that doesn't kill the mycelium. Now the mycelium has spread to the outside of the branch, it looks like rusty-coloured dense cob webs. It's covering one of the catt's roots.
So - is this anything more than just a nuisance? If I need to get rid of it, what should I use that won't harm the orchids? Sulfur spray is not a solution in this case. Replacing the branch is also not an option.