The Add-in seems to be setup correctly. Lets start with this one:
Step 1: Go to your OLW account in IE, login and upload a Word document.
Step 2: Click on it in OLW to open it and then click Edit. This should launch Office Word and sign you into Word automatically.
Step 3: To check this, go to this same flyout menu (the picture you posted) and see if it shows you as signed in correctly. If you are signed in, the place where it now says "Sign into OLW" will instead have your Live ID with a Signout Link and show the list of workspaces that you have created.
Let me know if this works,
Kavitha