Why does android ignore my etc/hosts change in the browser?
This sounds exactly like this, down to ping working but not the browser. His eventual solution is quoted below:


  Stupid question, but are you editing the file on the handset or just pushing the file that 
  you posted here?  The one you posted is in dos format, so it has extra linefeed characters 
  at the end of the line that could confuse a linux system.


I don't know what you used to modify it, but you might want to check what kind of linefeed/newline characters it's using.