Okay... I think there is some weirdness going on within the 64bit OS, fileredirection, and kixtart.

So my understanding is, a 32 bit app, which kixtart is, should not be able to see files in the system32 directory UNLESS fileredirection is turned OFF. A second way for 32 bit apps to see system32 files is to use %windir%\SYSNATIVE. Based on Ruud's comments above, Fileredirection should be ON, by default, but appears to be OFF
? "Default Wow64FileRedirection Setting=" + SETOPTION("Wow64FileRedirection")

Returns:
Default Wow64FileRedirection Setting=OFF


So my thought was, if this is true, then I should be able to check if the hosts file exists, which is stored in system32\drivers\etc. Again, in a 64bit OS, if fileredirection is ON, kixtart should not be able to see it, but if it OFF, it should. However with the following code, you will see that Kixtart finds the file no matter what the setting is. 

cls
? @kix
? @producttype + " " + iif(@onwow64,"64","32") + "bit"
? "Default Wow64FileRedirection Setting=" + SETOPTION("Wow64FileRedirection")
? "Hosts file="
if exist("%systemroot%\system32\drivers\etc\hosts.")
  "found"
else
  "not found"
endif
$RC=SETOPTION("Wow64FileRedirection","OFF")
? "Wow64FileRedirection Setting=" + SETOPTION("Wow64FileRedirection")
? "Hosts file="
if exist("%systemroot%\system32\drivers\etc\hosts.")
  "found"
else
  "not found"
endif
$RC=SETOPTION("Wow64FileRedirection","ON")
? "Wow64FileRedirection Setting=" + SETOPTION("Wow64FileRedirection")
? "Hosts file="
if exist("%systemroot%\system32\drivers\etc\hosts.")
  "found"
else
  "not found"
endif
?
? "Hosts file(SysNative)="
if exist("%systemroot%\sysnative\drivers\etc\hosts.")
  "found"
else
  "not found"
endif

Returns:
4.61 Beta 1
Windows Vista Business Edition 64bit
Default Wow64FileRedirection Setting=OFF
Hosts file=found
Wow64FileRedirection Setting=OFF
Hosts file=found
Wow64FileRedirection Setting=ON
Hosts file=found
 

Hosts file(SysNative)=found


As the original poster said, it appears that the FileRedirection setting is not working as expected.