IT WORKS okay on windohs which makes it scary that linux doesn't!
Well, it works on Linux too but is slowing you down, possibly because linux reads it more often.
In your shoes I'd try and set up a ramdisc, copy hosts to it and replace /etc/hosts by a symlink to the new hosts file. See if this speeds things up.
I gave up on filtering on the gateway, especially when I converted the whole house to firefox - 5 people, each with different surfing habits.