For modeling RKT, I've always used the same recipe as normal, but without butter. Typically, it will stand up vertically very well, provided you compress it enough while modeling. Here is a photo of a cake I did last weekend for my son's birthday:
The tentacle is RKT covered in two layers of fondant, and it worked fine. Here is a Snoopy I made for Christmas, using the same method:
The Snoopy was not quite as smooth, so I used a thicker layer of fondant for the tentacle. Your Spongebob cake is great, btw!