Assuming that the plant on that little island above Bikini Bottom is a tropical palm tree, Bikini Bottom and thus SpongeBob live in the Pacific ocean, a warm tropical reigon. As seen in the Movie, David Hasselhoff travelled west to take our hero back to Bikini Bottom, and unless David was somehow in Spain, he was heading from North, South or Central America to Bikini Bottom. Furthermore, there are not any volcanic island (or any islands period) in the Atlantic Ocean, so by default and the above analysis, SpongeBob and friends are in the Pacific.