I've not heard the term "sweet ship" used because of the cargo - it is usually used to mean a "sound, well-sailing" ship - but I can assure you that even if the cargo was wine the bilges would still stink (assuming it was a sailing ship with unpowered bilge pumps). If wine escaped from the casks, it would soon turn rancid and, besides, it wasn't usually the cargo which found its way into the bilges. Modern metal-hulled ships don't have bilges in the way that sailing ships did. The approach to construction is different, and waste management is rather better ...

Passenger ships in the mid-19th - mid-20th century used the term "steerage" to refer to crowded, cheap, dormitory-style passenger accommodation within the hull rather than in the cabins above the main deck. In fact for many years ships' accommodation was called either "cabin class" or "steerage class". No doubt the term arose from the use of the otherwise wasted space above the steering gear (in the older sailing ships) for low-priced accommodation, but it came to mean any accommodation below the main deck in the end. This link was quite interesting - I bookmarked it for some reason. Glad its come in useful ...

http://www.balchinstitute.org/resources/destinationusa/html/body_introsteerage.html

Your friend could have used the term "forward of steerage" to refer to the physical location of the accommodation he's writing about. I wouldn't call him on it; it seems to work.