Host file? useful or slows down performance?

I have been researching host files and have found contradicting opinions. Is a host file to redirect bad stuff to 127.0.0.1 a good idea or does it slow down the computers performance? I use Ie-spyad which I assume goes directly into the restricted sites list, however I also wanted to download MVP which I assume would use C:/windows/system32/drivers/etc/host. This folder already exists and I cant open it because it doesnt give me notepad as a choice.  I have also found other list I would like to use but that involves adding them to the existing file or can you have several host files separately?  One list had 9000 entries. The more I researched the more questions that arose such as a large host file could make the OS run slower. Can anybody clear this up for me? Should I not even think about using it or can someone tell me a simpler way to add different list together into one list?  I'm sorry this was suppose to be a simple question and I hope a simpler answer. I already use all of Antispyware programs suggested and have no problems that I know of. I am however switching from dial-up to cable and I am a little worried about being an open target afterwards. Thanks in advance for any advice.