This is by far the easiest way to edit the HOSTS file in XP that I've found. I also like the serving up a HOSTS file from a server (see the link).
Lifted from: myps.org
| To edit your HOSTS file you can create a custom Desktop or Quick Launch shortcut. | Note: the below locations are for the default paths, edit as needed. Right-click on the Desktop, select: New > Shortcut (and paste the following)
| **Windows XP** | Target: C:\WINDOWS\NOTEPAD.EXE C:\WINDOWS\SYSTEM32\DRIVERS\etc\HOSTS
Start In: C:\WINDOWS\SYSTEM32\DRIVERS\ETC
| Or put a Notepad shortcut in your SendTo folder | Start | Run (type) sendto (click Ok) | File > New > Shortcut | In the command line, (highlight and paste the below)
C:\WINDOWS\NOTEPAD.EXE (provided Windows is the default location)
Then simply right-click on the HOSTS file and select: SendTo > Notepad