SmileyGiles -
I am also running the latest version of Lion on an iMac.
Where are you getting hung up with Terminal? Here are some ideas:
Don't see the host file info?
Be sure that you are typing a space after 'sudo nano', like this: sudo nano /private/etc/hosts
Then, enter your user password.
See the host info, but it looks different than those posted previously? Write down/make a copy of your original host settings (just in case you need to go back). Then, try Jon T-W's suggestion:
Add to the existing lines a #, followed by a space, preceeding each line that didn't previously have this.
Then, add as the last line: # 127.0.0.1 gs.apple.com
Now, save the new host file using control+o. Hit enter.
Then, exit terminal using control+x.
Finally, restart the computer.
If this doesn't work....review everything in the note below. I did everything listed above and turned my firewall off, detached all other USB devices, connected directly to my ISP source before it finally worked.....so it's difficult to say exactly which thing or combination did the trick. Hope this helps!
"If there were no system software updates available for your computer, you are running the latest version of iTunes, have no other USB devices attached, have no security software installed, and are directly connected to your ISP source, simply restarting the computer can clear up certain issues that could prevent you from restoring iPhone, iPad, or iPod touch. After restarting, attempt to restore again."