It is a billion times better than decentralized DNS. http://en.wikipedia.org/wiki/Hosts_file#History

if anyone is interested, i wrote a script to improve that a little. obviously it's no replacement for dns, but it makes it easier to share the data - it treats your hosts file as a database that can be both dumped to a file and updated from various sources, including web pages. https://github.com/ghettonet/GhettoNet

I imagine a decentralized DNS service based on the bitcoin network would be kinda cool.

Check out namecoin.

I had difficulty understanding namecoin. Do you simply pay for DNS registration with namecoins or is the DNS itself hosted in a decentralized and anonymous fashion?

You pay for the registration and update of names with namecoins and the data is stored in the namecoin blockchain. In this way it is decentralized. Lookups are done directly from the blockchain.

Or just .onion using Tor.

Interesting - thanks for the link.

It isn't just the domain names system, the whole way IP addresses are handled isn't much better.

Care to elaborate? I think the RIRs are doing a reasonable job, though if you don't like the needs-based approach to allocating addresses I could see the RIRs as disappointing.