OK, first, let me apologize for not responding earlier. I haven't had access to this computer in a while.
Second, this setting of permissions is so bloody complicated: not only do I have to be an administrator, not only do I have to change the permissions, but I also have to be the ^^ownerçç of the etc folder and hosts file in order to set the permissions to what I want. Furthermore, Im doubting that the permissions I set to the etc folder were really carried down to the hosts file (even though it said they were).
I did open a new notepad file with the OPEN AS ADMINISTRATOR and recreated the good version of the hosts file (being sure that the .txt extention is not there) on my desktop, but even after setting the permissions of the etc folder to FULL CONTROL for the administrator I was logged in as, these permission settings didnt seem to cascade down to the hosts file. After setting the permissions on the folder and telling it to cascade these settings to the folders contents, I tried to copy the hosts file from my desktop to the etc folder and it tells me: you need permission to perform this action.
If I look at the properties of any file in the etc folder (remember that I cant do this with the actual hosts file because its invisible), I see that the administrator account Im logged in as DOES have full control checked (and everything else except special permissions), and I am the owner of the file. I can overwrite any file in there but not the hosts file. Im guessing that because Im not the original OWNER of the bad hosts file, and I cant set the owner to myself since I cant open the properties of this file, its an issue of ownership.
BTW, I unchecked read-only in the properties of the etc folder and chose to make this change to all content of the etc folder, but it told me I need to get administrator permission to make this change. The check box DID remain unchecked, but every time I close and reopen the properties dialog box, the check reappears (greyed out).
BTW, Im doing all this in safe mode. I also did run MBAM and it found no malware (doesnt mean I dont have any).