I've seen the method of using ballsmoke sprites scattered about used in a 1player mod once. It worked reasonably well, but I think it's only going to look right in more linear areas (ie not a big open room etc.). Not sure how laggy it could get, either. I don't know that you would need to fix the axis for this effect, in some situations it might be better not to.

What I had used a sprite to do was create a low-lying or ceiling-clinging fog effect. It's pretty limited, but it can look really nice in some situations. There's a tutorial on that here, as well as on making fixed-direction sprites etc.

I've created a few neat special effects for some of my new maps; it can take a lot of experimenting to get something just right. For what you are doing sprites and func_illusionaries are probably the way to go. I would make a small test map of the area you want foggy (so it compiles super-fast) and slowly tinker around with these to see if you can get the effect you want.

(btw, I might make prefabs of the water fountain, 3d lightbeams, and spark-spitting fires from Temple once AHL v1 is out.)