At one time, OS X didn't consult the hosts file before doing a DNS lookup. In 10.3 and 10.4, it does. You can check the name resolution order of your Mac using Terminal; enter the following:
lookupd -configuration
Look for the following in the output:
LookupOrder: Cache FF DNS NI DS
_config_name: Host Configuration
The FF (flat file) refers to your hosts file (/etc/hosts), and Tiger does check its contents before going to DNS and Netinfo. Just a little FYI for those who may not have realized that 10.4 fixed things.
Mac OS X Hints
http://hints.macworld.com/article.php?story=20070223050607406