What type of drill bit do you use to drill a perfect hole in sponge type material like couch cushions?

I would put the cushion on a flat surface laid on an expendable piece of wood, then place another piece of wood over the top of the cushion, weight it down then use a drill bit that is similar to the ones linked below. The finer the tooth of the bit, the better. Don't be in a hurry! Use a masonry bits (the least expensive.) Note: the picture below shows Diamond bits, but masonry versions are similar, available at any "big box" hardware store.