The time it takes to scan a 10k line file (even if it's not cached in memory) is much smaller than a round trip to your DNS server.

$ wc -l /etc/HOSTS 220572 /etc/HOSTS

Not only doesn't it have any negative performance impact, it makes most websites 10x faster.

(And no, there's no dead weight in there. Every single one of those is still resolvable as of a month ago.)