I know you are not allowed to sell any cake you make out of the character pans (Nic, Disney etc) but if you make lets say a Spongebob or Mickey out of fondant and put it on a cake is that allowed or is that also a no no?
It is a no no. You can not reproduce an copyright image in any way, shape or form. This would include free handing the picture, FBCTs, Chocolate transfers, color flow pieces, molded fondant items, homemade edible images, ect...
You can purchase edible images or toys to use to decorate a cake though.