It is a bad idea, and really this is the job of a firewall. The problem is most firewalls for Windows are so lobotomized, you can't specify rules for specific domains. The HOSTS file has long been abused by people who don't understand it's real purpose. It's really only there because Microsoft used the FreeBSD codebase to develop the Windows network stack. Something that is perfectly legal for them to do under the terms of the BSD license, but that's why you find programs like ping, traceroute, and the rest in Windows and they're identical to their *nix counterparts. The HOSTS file is there because it would have been too much trouble to rip it out.
I'm a big proponent of the idea of the best tool for the job, and the HOSTS file is about the worst tool for this particular job. You'd be much better off with a real firewall that can make domain level rules. I don't know if any of the toy firewalls for Windows can do this. You could probably do it with the XP/Vista firewall and IPSec, but probably not ZoneAlarm or any others like it. The programs are NOT required to honor the HOSTS file like they are a firewall, which sits between the operating system and all programs, checking every packet that goes in and out. I'll say that one more time, because it seems to have been missed the first time. The HOSTS file is OPTIONAL, and programs ARE NOT required to honor it at all. Since most malware is about making money, if HOSTS files become common, how long do you think it will be before a minor alteration to the malware is made to cause it to bypass the HOSTS file?
And besides that, a much better solution is to simply not use programs that are prone to having problems with malware. It can, and very frequently does, happen that legitimate sites are hacked and a very small alteration is made to the site to serve up malware. A HOSTS file will not necessarily protect you against this, but using a web browser not subject to malware will.
Rather than a HOSTS file, you'd probably be better off using some sort of a caching web proxy like Squid. At least that way, you can conserve bandwidth by caching pages of sites you go to often.
The HOSTS file is one of those tools that has been grossly abused by people who don't understand what it's for. The fact that it can be used for these types of things is quite interesting, and a tribute to the people who came up with it, but it's a very imperfect tool for this sort of thing. I could use a sledge hammer to swat flies, and it will certainly get the job done, but a fly swatter is generally a much better solution for that particular task.