I was afraid this would happen. Since no one will pay for high rated engines, Fritz has decided to charge for access to low rated engines. They must figure that more people will pay money to play with genial patzers who lose gracefully and aren't afraid to compliment their opponents. ("You're just too good for me today!")
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I don't know what exactly is the issue with the software but whenever I am in Training/ Handicap and fun, the engine won't activate for rating less than 1700 in the Set Handicap Mode dialog, which means if I am white and I play the first move the engine window show's no activity. But as soon as I up the rating upwards of 1700 I could play against Fritz.
Similar issue is there in Sparring Mode. Engine works only for Harder and Really Hard mode and not the other ones (as you guessed the easier ones).
Did anyone faced similar issues?