I wonder how well the hosts file can scale. Would it handle thousands of "blocked" domains without noticeably slowing down your browsing?

A large hosts file will cause issues but this can be mitigated with some DNS fiddling. Check out this site for more details (you can also d/l their updated hosts file):

http://www.mvps.org/winhelp2002/hosts.htm

I understand he's starting to fly apart in there

"Fly him apart then!!"

That's OK.. he lost me when he said terrorism was a real and immediate risk.

Plan B: Twice as much explosives as Plan A