The Observers are clearly detached from reality. They never show external emotion, and we've seen that they probably don't even experience time in a linear fashion.

But we've also seen that they aren't completely detached. August fell in love with Christine Hollis in the episode you mentioned. September, the Observer we're familiar with, clearly has an emotional attachment to Walter (after all, he didn't finally erase Peter from the timeline when he had the chance).

My guess is that they have a tenuous link to reality that allows some sensation through. The aforementioned relationships were preceded by long periods of observation. It's possible that spicy food is somewhat analogous -- it's the only thing they're able to taste.