That's a lot more complicated than it has to be

Go to tedit. Go to User Editor (U). Enter an unused number (a high one will normally be unused, like 100). Press A to initialize player. Press B and enter the user name you want. Press Y for observer, then y again to say yes. Then press x. Now log in as the user name you set. It will prompt you to set a password and stuff, like normal game entry, then when you get in the game, you'll be an observer. It's basically the same thing as Vader has you do, but you don't have to jump back and forth between windows this way.