erouse2,   Can you try copying the hosts file to the etc folder? I think when I had to change it, I had to pull the hosts file out of the folder to the desktop, then update it and then put the file back.   Maybe this will help.   Blocking Unwanted Parasites with a Hosts File      Rick
I am new to Vista and need to change the hosts file located in C:\Windows\System32\drivers\etc folder for software I use to operate properly.  I can open the file in Notepad OK but when  I try to save it after making changes it says "Cannot create the C:\Windows\System32\drivers\etc\hosts file.  Make sure the path and file name are correct".  I have changed the security permissions to administrator and have taken ownership of the file as administrator.   Please help!   
Cannot create the C:\Windows\System32\drivers\etc\hosts file