Here are some good tips to prevent damping off disease from http://www.gardenersnet.com/atoz/germinat.htm
Those of us who have grown seedling indoors for any number of years know what "Damping Off" disease. This is a white mold that forms in the top of the soil. Damping Off disease flourishes in cold, wet damp weather along with little sunshine. It quickly spreads across the soil and wilts the seedling. Take it's habitat away, and the disease can not survive. Plants on the other hand, love just the opposite conditions. The more you make conditions ideal for your plants, the more likely you will avoid Damping Off Disease and other mold and fungal problems.
If you do experience problems, do not give up hope. Here are some things you can do to minimize or eliminate disease problems:
First, get the plant in direct sunlight if at all possible.
Stop watering until the surface is very dry.
Water only from the bottom.
Scrape as much of the mold off the soil as possible.
Stir the top of the soil without disturbing the roots. It will also speed drying.
Add some soil, although this may or may not produce results.
Increase room air circulation. You can gently blow air on your plant trays with a small fan.
Avoid sowing your seeds in the basement and leaving them there for a couple of days. While the trays are conveniently out of the way, this is a perfect breeding ground for Damping Off Disease.