Spotify. The elusive European streaming music startup that you just can’t get access to in the U.S., unless you know someone or jump through a few hoops.

The U.S. launch has been delayed over aggressive negotiations with the labels over the price users will pay in the U.S. Spotify insists on free, the labels want to move away from that model entirely.

We’ve heard that a compromise has been reached. Spotify will be free for users, but a “very limited” number of people will be able to use it.

Much more interesting, though, are the conversations with Google that we’ve confirmed. The two companies sketched out a plan where Spotify’s excellent Android application would be build into the 2.1 version of Android and would launch in the U.S. with the Google Nexus One phone on January 5. The application – which is available in Europe and allows for offline syncing of songs – would give Google a much needed competitive answer to Apple’s iTunes. The Android could realistically be seen as a media consumption device, like the iPhone, with things like Spotify built into it.

Google wanted Spotify badly enough that they were willing to cover the label costs for every user of $3 – $4 per month. Spotify would add advertising on top of it, as they do with the free version in Europe, to make additional revenue. Without Google paying those label fees there was no way Spotify could handle the costs of the user flow that 2.1 would provide. Currently, European users must pay for Spotify Premium to use the mobile versions of the service.

We haven’t heard whether the deal was done, and there’s a chance Spotify will be part of the January 5 Google announcement. But our sources say the deal has likely gone cold, at least for now.

When Spotify does launch in the U.S., though, look for a new version of the player that adds social elements – like social playlists – to the product. That’s a big weakness Spotify has against MOG, which uses social elements to aid discovery of new music. And Spotify will also supposedly let you play songs that you have on your hard drive (like via iTunes) that they don’t have in their library. That will help fill in the ever-decreasing gaps in their library, and make Spotify that much more compelling for users.