Windows does not parse the LMHOSTS file if DNS (Domain Name System) is
enabled.
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Windows does not parse the LMHOSTS file to obtain the IP addresses of
other computers if DNS is enabled. Therefore, a Windows
workstation cannot connect to servers listed in the LMHOSTS file.
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To work around this problem, preload the LMHOSTS entries into the NetBIOS
name cache using the #PRE option in the LMHOSTS file. For information
about the syntax for the #PRE option, please see the Lmhosts.sam sample
file in the Windows folder.
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Microsoft has confirmed this to be a problem in Microsoft Windows.
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