I got a virus which i believe i have removed all the actual virus files themselves. But one of the nasty features of the virus was that it blocked anti-virus related websites (websites such as avg.com, lavasoft.com etc..). So it is blocking my anti-virus software from downloading updates.

I'm sure there has to be a file listing these blocked websites somewhere but i cannot seem to find it.

I've reset the windows/system32/drivers/etc/hosts file (which did have bogus host redirects in it). But still the websites are blocked.

Any idea where to look?

For example when i do a tracert to avg.com i get this:

Tracing route to localhost [127.0.0.1]

over a maximum of 30 hops:

1 <1 ms <1 ms <1 ms localhost [127.0.0.1]

Trace complete.

The hosts file normally used by Win XP is in ../windows/system32/drivers/etc/hosts as you say but some viruses can change the location. So try a search for any other files called 'hosts' and open them up in Notepad (ensure search options are set to show hidden files).

Download, install, update and run a Quick Scan with Malwarebytes' AntiMalware. Make sure items found are ticked and choose Remove Selected when completed and reboot.