I imagine if it was dead, you'd know -- dead sponges smell like nothing else on earth. They absolutely REEK. Think a dead snail smells bad? That's nothing. A dead sponge could peel the paint off a new car from 30 feet away.
If it's feasible, you could try moving it -- if it's in the light, try moving it into the shade. High current? Move it somewhere less turbulent. Maybe changing the surroundings a bit will help restore its original colour, but that's just a guess; I don't know much about sponges at all. I have loads of little ones in my tank, all sorts of colours and shapes, but they're all hitchhikers; I've never tried buying a beautiful ornamental sponge, though if I saw one at the LFS it would be tempting. Some of them rival corals in their shape, colour, and overall beauty. Good luck!