Office 365 SharePoint Online App "Error occurred in deployment step 'Install App for SharePoint' Access to the path 'c:\windows\system32\drivers\etc\hosts' is denied."

If you are getting an Error 

"Error occurred in deployment step 'Install App for SharePoint' Access to the path 'c:\windows\system32\drivers\etc\hosts' is denied."

while developing an App targeted to Office 365 SharePoint Online App then keep in mind that VS tools automatically modify your host file to ensure the app can be accessed.
The modification should only occur if you are developing on On-premises but there is a bug so that even if you are deploying against an Office 365 site the tools attempt to modify your host file. 

According to MSFT the tools will be updated in their final release to remove this issue for 365.