I tried doing the same steps, but things won't budge. I am also a Windows 7 user (32 Bit), and also a have Free Account.
When I tried to edit the 'hosts' file, it did not show any 'Spotify' word in it! So I can't edit and save because it is already done! I did try reinstalling and restarting my pc but still the 'hosts' file did not have 'spotify' in it.
Also when I connect my phone with my PC, it shows my playlists' names but shows that the playlist is empty. Even though it works perfectly on the phone and I can still add and control songs on my phone through my laptop, but fianlly it won't play on my Laptop/PC.