It's my experience that win-98 shows no performance loss when using large hosts files. And unless my recollection is hazy, I think I read somewhere that it might be that XP that has a problem with large hosts files. As for Spybot, it's best to download the hosts file of your choice (ie MVPS, etc) first before you run spybot. Spybot adds entries to your existing hosts file during it's inoculation process.
@dencorso: Doesn't using such a giant hosts file give a serious performance hit in name resolving actions? I don't think the name resolving system on W9x is designed to cope with such a database.
I have found on occasion that I have to temporarily deactivate my hosts file to make particular web sites work correctly. To deactivate your hosts file, simply rename it, and then open a new instance of your browser. Any browser window that's already open when you rename your hosts file will behave as if your hosts file is still there. I find that I can't properly post to kijiji unless I deactivate my hosts file. Don't know which entries are responsible.