Hi,
AFAIK, when using more than 1 hosts source, there's little left than using the option "Merge hosts), since when you choose "Overwrite hosts" you'll always end-up with only the latest downloaded hostslist.
You also need to use "Merge" when you also want your own little selfmade hostsfile added to it.
So, the quaestion is, the normal option will be Merge, but doesn't that make you end up with one HUGE mostly outdated hosts file ?
Also about the "Adding your own file as a update-source" see my post about a small bug in Hostsman :
http://forum.abelhadigital.com/index.php?showtopic=469