Thanks for your reply. Although I only did it this morning, I've forgotten precisely what I did (but it most certainly worked). I think I saved the new 'hosts' as 'hosts(2)', dragged that across to the 'c:/windows/.../etc' directory, and then did some renaming. I wonder if that worked because Windows is inconsistent and allows renaming where it won't allow over-writing ?
It no longer matters exactly what I did, because I've now changed the permissions on the 'hosts' file and its path directories, and I can open 'hosts' with Notepad without having to 'Run as Administrator'. I've also been in touch with IDM Computer Solutions, the makers of UltraEdit and they've given me a line to put in their 'ini' file which enables display of the 'etc' directory so I can now open 'hosts' in UE and save the edits. My problems have melted away. M$ might say my files were now at risk, but I'm the sole user of this home office machine, and I'll take my chances. Now that I can open 'hosts' in UE it may be I can work with the permissions reverted, we'll see.
I've been running a local server for a long time, and only ran into difficulties with editing 'hosts' in my new Win7 (64) machine. My original work-around had been to run web sites under development in sub-directories of a domain already set up as a virtual host. That worked to a degree on a simple site, but I ran into trouble with directory levels and PHP includes. Hence trying to use mod_rewrite to remove the leading '/' from links, which started this thread. I no longer need to do anything like that.
My thanks to you and others, talking around this problem has led to a far better (and more 'standard') solution.