Very interesting, I suppose it would work, using the salt and the conditions to decrease the solubility enough. Kinda neat!
So, yes in this case, you had an organic layer, but due to solubility, there was still some in that layer. So the anhydrous MgSO4 will remove any of the extra water. It should have gone from being floaty to being very clumpy, and then you would have added more until you saw it floating freely again, yea?
When we did this, we used CH2Cl2, but I guess this is the new green chem way to introduce this lab.