Like many people out there, I modified what I thought was my Hosts file and found that Windows 7 was ignoring my changes.
As you probably did, I initially looked for C:\Windows\System32\drivers\etc to edit the Hosts file but it was not there.
Instead, I found a Hosts file in C:\Windows\System32\drivers\hosts folder and edited that file, thinking that it must be the Hosts file for Windows 7.
My edits had no effect.
After a couple of annoying hours of looking for a solution online, here's what worked for me.
You have to create the C:\Windows\System32\drivers\etc directory and put your Hosts file in there.
For me, I determined that this was the right directory to include the Hosts file by looking at the DatabasePath field in this registry key:
Once I created the etc folder within drivers and put a Hosts file in it, everything worked for me.
Hope that works for you if you are experiencing Windows 7 Hosts file problems and are looking for Windows 7 Hosts file troubleshooting tips!