I think you were totally right. And I think it was kind of rude of her to ask when everybody else had to pay. Don't let her huffiness bother you. If you let one person watch for free, then you have to let everybody watch for free. Next time, just tell her that the class isn't set up with a spectator section.
Our LQS used to offer demos on Friday mornings for 1-2 hours. It was just a demo--not a hands-on workshop. Those were limited to 12 people because that's all the room they had. There was a nominal fee of $2 (if I remember correctly) just to pay the instructor something. So, even then, just watching wasn't free.