In Windows Vista, Hosts file is a read only hidden system file. So that you cannot edit that file. Also running notepad as an administrator doesn't solve this problem.
There are a lot of articles about this topic but none of them giving this solution.

You can solve this by typing some DOS commands at command line:

C:\Users\Administrator>cd C:\Windows\system32\drivers\etc
C:\Windows\System32\drivers\etc>attrib -s -r -h hosts

After you edit and save the file you can put attributes back.

C:\Windows\System32\drivers\etc>attrib +s +r +h hosts

Hope this helps...

PS: Order of the attribute switches is important. Write s first.