Yes, that system is almost exactly what I was imagining. The only difference is that I will be adding a "marsh" area for some filtration instead of just the sponges.
I am starting to think about light now. I wanted to put this in an east facing window, but my wife wasn't too excited about that. Looks like I'll need to build some lights!
Again, I'm thinking super low budget here. I'll probably do 5 cfl bulbs in a custom reflector. Possibly two timers so that I can simulate a day cycle. Not totally sure though.