Proxy/vpn/alternate dns source and the Windows HOSTS file.

If you are connected to the Internet using a custom dialer provided by your ISP, 
through some Local Area Network connection's or a remote proxy server then the hosts setup 
steps could do nothing in some cases.

Using a remote proxy server which basically does the DNS requesting for you does prevent 
the HOSTS file from being considered. 

Work-around to fix this issue:

In IE go to - Internet Options>Connections and choose your connection.
Make sure the box called "bypass proxy server for local addresses" is checked.

Example: click the LAN Settings button, select: Proxy Server
"Bypass proxy server for local addresses", click the Advanced button.
Add" 127.0.0.1 " or " localhost, 127.0.0.1 " click Ok, Ok

If you are not using a proxy/vpn/etc then you can skip this but it will do no harm
to do this step anyway.

Firefox/Chrome etc have similar settings that can be configured such as;

Edit: Preferences: Advanced: Proxes and click the manual setting. Then click on view 
and type "127.0.0.1" into the exceptions box at the bottom, so basically adding 127.0.0.1
as a block/ignore will then force the hosts to be used.

The latest firefox by default has no proxy for localhost, 127.0.0.1 already set as default for 
using "use system proxy settings" but for manual settings you may need to add 
" localhost, 127.0.0.1 "as a block.

When finished doing any changes open a command prompt as admin and type
" ipconfig /flushdns ".