Sludge, a type of urban solid waste, is commonly used as an auxiliary cementitious material due to its inherent volcanic ash activity. Furthermore, hydrogen peroxide can react with certain components in the sludge, such as carbonates, solidifying the sludge while generating gas, which can act as a foaming agent in foam concrete. This study explores the performance of sludge-modified foam concrete under different activation methods and sludge content. The compressive strength, water absorption, and porosity of the modified sludge foam concrete are evaluated, and the TOPSIS method is employed for assessment to determine the appropriate sludge content and activation method. The experimental results indicate that increasing the sludge content and simplifying the activation method result in decreased compressive strength but improved foaming effect of the modified sludge foam concrete. Calcination has a significant impact on compressive strength, while grinding has a more pronounced effect on water absorption. Taking into account compressive strength, water absorption, and foaming effect, this study concludes that sludge with a 10% content, subjected to a single calcination process, can maximize the performance of the modified sludge foam concrete.