If you use other TeX distribution (TeXlive, MikTeX), you will have
conflicts because your system doesn't know how to differentiate between
your current TeX distro binaries, and Context's binaries, so, the system
will use different (non-compatible) versions of a lot of things, and will
use the first executables found in the PATH. I have both texlive and
context, but configuring them to work well together, took me a while. I use
a couple of custom .bat files to invoke context's path ONLY when I compile
Context files, but use the defaults for textworks when I complile LaTeX
files.

What I did was:
1. Your same steps 1-3.
2. Created a folder called C:/context/pragmatex/
3. Inside that folder I placed two files: PRAGMATEX.BAT and SETPATH.BAT
(contents below)
4. Add C:\context\pragmatex\ to the PATH variable (so the two mentioned
files can be found by the system)
5. Configure TeXworks:
  5.1. Open TW and go to Edit > Preferences
  5.2  Select "Compilation" tab
  5.3  In that Window, in the field "Location of TeX and related programs"
(or something like that, the name can be slightly different. I use the
Spanish version), add (using the button marked "+") the folder
C:\context\pragmatex\
  5.4  In the same window, below, select ConTeXt (LuaTeX), and click "edit".
  5.5  In "Program" add "C:/context/pragmatex/pragmatex.bat" (without
quotes).
  5.6  In "Parameters" just add "$fullname" (without quotes) if it's not
already there.

The contents of the two mentioned files (just plain old .bat files, can be
created on notepad):

**************************************************************
pragmatex.bat
**************************************************************
@echo off
call C:\context\pragmatex\setpath.bat
context --synctex=zipped --autogenerate "%1" --purgeall
**************************************************************

**************************************************************
setpath.bat
**************************************************************
@echo off
C:\context\tex\setuptex.bat C:\context\tex
**************************************************************

Hope this helps. Is a very crappy setup, but it works for me. You can adapt
it however you like.
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