For me, host is set to electrum.be:
host = electrum.be
Electrum.be resolves to the public ip of my server. In your case, this will resolve to 127.0.0.1 (via /etc/hosts). So this is 1 problem.
Password should be set to the password of bitcoin.conf.
Thank you! I think that solved it. I changed from 'host=localhost' to 'host=0.0.0.0', and I commented out the 'password=secret'. This isn't the bitcoind section, so I don't think it's the bitcoin password. I DO have the bitcoin password set in the bitcoind section.
Anyway, now I can connect REMOTELY using TCP, SSL, HTTP, and HTTPS.
Cool... If this works, I'll be running another public electrum server soon. Electrum is really the ONLY wallet that doesn't suck in some way.
[I hope Thomas doesn't take offense to this. This is my highest compliment.]