Not sure what happened..... There was no instruction for what to do with the sugar, so I put it in with other dry ingredients...... The result was...

Thank you, that does make sense. I do remember seeing sugar getting beaten with the eggs in other recipes. It would be helpful if this could be added to the instructions.

In a sponge cake, which this is, the sugar is typically beaten with the eggs. More generally, in baking sugar is treated as a "wet" ingredient and mixed with butter, eggs, or other liquids before adding the flour and other dry ingredients.

If you add the sugar with the dry ingredients, it doesn't have time to dissolve, and bad things happen.