I hate to tell you, but I believe the smell is mildew. I have used several products to remove the smell. There is a bar of soap called "Fells Napta". This soap will not harm the coating. I am not sure of the exact spelling of the soap.. You can find it at the grocery store. Wash the panniers with this soap. It should help with the odor and killing of the mildew.
You could also wash the bags in a washing machine with regular clothing detergent. This will start to remove the aging waterproof coating. You then could used a brush on the coating to begin to accelerate the flaking off of the coating that will start to be apparent. I would not throw the bags away, just line the bags with plastic compactor bags. These bags are thicker than normal trash bags. I continue to use my 30 year old Eclipse pannier bags. I have removed the waterproof coating and they work great. In my experience, if your bags have a zipper, then the term waterproof, is an oxymoron.