First off I think you are way over watering let them dry out Knats need a water source and that is currently the top of your soil, I suggest finding an organic pestaside like fox farm and lightly spray the top of your soil creating a barrier between moist soil and the knats. Spray the plants as well, then do not water again untill the bucket feels light.
As for your soil with wood in it that is ok just keep an eye on your ph it has a tendancy to rise as the wood breaks down.