I'm not sure why you posted a 2000 question in the 98/95 forum but...........
As stated above the host file is for "blocking" ads and web sites etc. usually.
In Windows ME/98/95 the host file is located in the C:\ directory. That is your main hard drive where Windows is installed. I don't know about Windows 2000.
However the path you specify to your host file is highly suspect. And a sudden deluge of popups and strange host file entries is an indication of viruses/spyware/adware/etc.
Yes a host file can be infected, installed or altered. I suggest a wide range of remedies.
Install and update an antivirus program.
Do the same for adaware and spybot.
And if you have any P2P-file sharing-free music download programs etc. uninstall them first.
And since I'm not sure if you're using 98/95/2000/XP you may want to look into disableing Windows Messenger.
Feedback would be helpful.