I'm wondering why you're working with an outdated beta copy of Windows 2000. I don't remember any specific issues in the beta with HOSTS, although there might have been. Let's try to pin down the actual error.
First of all, the location is correct for a default installation. There is a Registry entry that sets the default location.
Key: HKLM | System | CurrentControlSet | Services | TCPIP | Parameters
Make sure no one has changed this value. If that's correct, then make sure you're using the default HOSTS file. It should have a little intro blurb from Microsoft and the loopback address 127.0.0.1.
On a new line, enter the address of a server on your network and give it a fictitious name like BOGUS that is not in DNS or WINS or LMHOSTS. The name is not case-sensitive. Save the file then ping BOGUS. Does the system time out or just sit there or hang or report Invalid Name? Any of these symptoms indicate a problem with the HOSTS table. If you get a good ping, you know everything is working fine and you probably have a typo in the entry you?re trying to use.
Is this the only machine having this problem? Do your machines running the gold code of Windows 2000 (build 2195) have this problem? Is it possible that you have two installations of Windows 2000 on this machine and you?re working with the wrong directory? Write back with more symptoms if none of this works.