I always wondered what would happen when the localhost file got attacked - viruses are beginning to use it seriously now. (Although I guess they may well have done before. I'm a bit out of the loop...)
I also wonder how far it could go, seeing as more viruses now have thing slike p2p capabilities, and automatic remote updates. Could we have a virus that uses p2p to simulate a Windows Update server on one machine, and update the localhosts file on another to taint Windows Update? Furthermore, what would be the point?