Anuj,
Below are my answers to your original questions:
Q 1. Can any one explain why despite of being able to ping, logon to server etc, having an entry in host file I am still not able to create a connection using imdbhdb?
Please refer to my blog: http://scn.sap.com/community/developer-center/hana/blog/2013/07/06/fix-for-database-connection-is-not-available-error-in-hana-sps05-rev-56-in-aws. Re: your other question about Elastic IP, once you obtain an Elastic IP, you may keep it (don't delete it) and use the same EIP (or DNS name) for all your subsequent connections. It does NOT change until you delete this EIP -- you just keep associating this EIP with your instances.
Q 2. I know it sounds like a lame question but how can I update the host name with my new Public DNS without dropping and re-creating it?
I don't know of a way other than deleting and re-creating it.
Q 3. I wanted to know if we need all these AWS snapshots or is it ok to delete older snapshots and release allocated space
It is difficult to answer without looking at the Snapshots. These might be Snapshots that were leftover from the termination of earlier Spot Instances -- in this case you may delete the AMIs first and then delete the associated Snapshots. You may take a look at my other blog: http://scn.sap.com/community/developer-center/hana/blog/2013/06/23/preventing-the-deletion-of-ebs-volumes-during-the-termination-of-aws-spot-instances
Regards.