It wouldn't affect them. Setting a web address (URL) to 127.0.0.1 in your hosts file simply means that if that site sends you a network packet (i.e any data), it will just be rejected by your PC. It's no different in overall principle to installing and using an ad-blocking plugin for your browser, really. So, I'm pretty sure it's legal - here, at least.
(For now, until our increasingly paranoid government gets around to banning anything and everything).
(Except wearing helmets while cycling, of course - can't ban that, perish the thought).
A tip: try Googling "blocking sites using loopback address", and read a few of the pages, it's interesting (well, it is to me, anyway).
