Now Olga gave to each soldier in her army a pigeon or a 
  sparrow, and ordered them to attach by thread to each 
  pigeon and sparrow a piece of sulfur bound with small 
  pieces of cloth. When night fell, Olga bade her soldiers 
  release the pigeons and the sparrows. So the birds flew 
  to their nests, the pigeons to the cotes, and the 
  sparrows under the eaves. The dove-cotes, the coops, the 
  porches, and the haymows were set on fire. There was not 
  a house that was not consumed, and it was impossible to 
  extinguish the flames, because all the houses caught on 
  fire at once.

...but no explanation for the spontaneous combustion of the cloth-bound sulfur.

Sounds like it was probably a closely-kept, obfuscated military secret like Greek Fire:

https://en.wikipedia.org/wiki/Greek_fire