There was actually a piece on this on Watchdog (a BBC Uk consumer issues programme) just last night. One hotel owner (which provides free Wifi) said it cost them £300 to provide the Wifi, he had 150 rooms so £1.50 a month/5p a day. The cost of the Wifi equipment that needed to be installed? His reply was "it's like fitting toilets, it's a one off cost which you just need to pay". They were specifically looking at the cost of wifi when staying at top hotels, some costing up to £20 a night. Your argument was one they also raised :)
The reason for the extortionate costs? Probably to make up for the lost revenue streams from people not using the in-room phones any more. I hope at that at least in this instance the guy wasn't paying for the internet access, that would be taking the p*ss!