Re: Blocking websites
no, you don't have to change the last octet for different sites. 127.0.0.1 is all you need. On an enterprise level I used to change everything on the DNS level. For example when this recession started happening I saw a lot of traffic going to Monster and careerbuilder - type sites so I started pointing all those domains to a custom page which had internal job openings at our HQ (same page for all of those job hunting domains).
It was pretty funny seeing people's reaction. They couldn't say anything either so it was funnier.
PS: The video that Namaan posted says it only works for Vista. Thats not true, that feature (trick) works for every single OS including all Windows OSs, Mac OS, Linux and other Unix flavors. In fact the "etc" folder (location varies among OS's) is adopted from the *nix environment. The hosts files exists everywhere. In the *nix side you actually have to change permissions to be able to modify it.
PS 2: 127.0.0.1 denotes "home". You'd see see a lot of geeks (and I use that term in the utmost respect) using that IP to freely replace the word home in slogans and other writings.