Clay,
I have been using the hosts file for nearly 20 years, 16 of which I owned a hosting company, and previous to that I was a developer, so I been using it personally for development, and resolving sites during migration or while testing sites on different hosts etc. I have also been advising customers on how to use the hosts file for a very long time.
As I have already pointed out several times, If the hosts file was not taking effect, then it would NEVER work, this would be a permanent issue. It wouldn’t just work one minute and then stop working the next minute.
Ping works just fine and the fake domains from my hosts file resolve to the IP address of the virtual machine as expected.
I also have IIS installed, and I have no problems whatsoever with sites setup here, they work all day long, no random intermittent issues. The only issue is with LOCAL BY FLYWHEEL.
I don’t really know how else I can explain this that will make more sense.